President Trump announced that he will be putting 25% tariffs on steel and 10% on imported aluminum. The markets acted swiftly to the news which led to a lot of volatility and downturn. The question becomes is this just all talk, using it as leverage to make NAFTA better or will this become a huge trade war?
One concern we have had is the potential big fine against China for stealing our intellectual property. That situation could possibly have a bigger impact on the markets than the tariff and trade war talk. China is putting steel out there at very low prices. China is one of the largest holders of U.S. Treasuries, owning over one trillion dollars, which equates to about 18.8% of all foreign holdings in U.S. Treasuries. One interesting fact is that steel using industries employed 80 times more than the steel producing industries. Something to keep an eye on is Trump using this as leverage because this could really hurt Canada the most, being the biggest importer of steel.
The underlying fundamentals of the economy haven’t changed. Consumer confidence and manufacturing are hitting all time highs. Also, corporate earnings continue to move up and you need to understand that we just had a big tax cut. There are a lot of corporations that went from 35% taxes to 21%. This gives those corporations a lot more capital to work with. Inflation is another item the economy is keeping a close eye on. Jerome Powell spoke last week that we may see 3 or 4 interest rate hikes. This tells us that the Fed is back in the picture.
The current volatility that’s occurring in the markets is something we haven’t seen since January of 2016. With this volatility, it’s important to navigate through the markets and distinguish what is noise and what is fact. This is what makes having a diversified strategy so important. We need to emphasize that markets don’t go straight up. This is the reason you need diversification, as well as different asset classes and sectors in the market. When the market is going well it’s easy to want to load up on equities and stocks but when the volatility kicks in, people are very thankful they have bonds in their portfolio.
Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Economic forecasts set forth in this presentation may not develop as predicted.
No strategy can ensure success or protect against a loss.
Stock investing involves risk including potential loss of principal.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Securities and advisory services offered through LPL Financial, Member FINRA/SIPC and a registered investment advisor.