Trade War Is In Place…Now What?

When Will This End?

 

The Trade War is now in place. We are playing tit for tat with many countries in various billion dollar amounts. Where will this issue be on Halloween? How about Thanksgiving? How about New Year’s Day?

 

In my opinion, Tariffs are a tax on the Country that Levy’s the Tariff. If we increase the tariff (tax) on imports, that cost is passed along to you and me. The thought is, if imported goods are now more expensive, we’ll purchase more domestic, (less expensive) goods. For example, if China sells us a pen for $1 and it’s sold by a US manufacturer for $1; most would purchase the US product. If the China pen now sells for $1.25 because of the tariff, do you think the US manufacturer will keep their price at $1? I don’t believe so, as natural capitalism will have the US manufacturer increase the cost to just under $1.25 because you’ll still purchase the US product because it’s cheaper. This can contribute to inflation, raising the costs of many goods and even services.

 

Challenging Time

 

I look around as I go out to dinner on Friday/Saturday nights and restaurants are packed. People ARE spending money. The population is growing, increasing the amount of consumers purchasing goods and services and Baby Boomers are NOT retiring in mass, as once thought. The tax cut is placing additional funds in most people’s pocket which is typically spent. This suggests Corporations should be able to continue to record excellent profits, which typically propels the equity market higher.

 

On the other side, this recovery is now 9 ½ years mature, the Federal Reserve is determined to continue to increase rates which increases cost of capital to individuals and corporations. The Fed is also in the process of letting its massive balance sheet start to roll off by enabling a certain amount of bonds to mature each month without reinvesting them as they were doing prior to October 2017.

 

The recent tax cut is increasing our annual deficit which will lead to additional debt and interest payments that you and I will have to make. (Our tax dollars).

 

Where does this all end? Time will certainly tell us! Diversity and preparedness with your Retirement Income and Investment Planning is critically important with the amount of conflicting data points to follow.

 

US Markets Mixed Last Week

 

The Dow Jones Industrial Average and the S&P 500 were down .48% and .20% respectively. The Nasdaq Composite and the Russell 2000 were up .35% and .82%. Over the pond, the MSCI EAFE index was down 1.46%.

 

Bonds responded positively on Friday to the Turkish Lira dropping in value which sent concerns through emerging markets. The Barclay’s Aggregate increased .42% last week. It will be interesting to see the plight of the Lira. Worth paying attention!!

 

Oil is down from its high in the mid 70’s to finish last week at $67.63, still up from $60.42 on December 31, 2017.

 

Economic Information

 

The US Consumer Price Index rose 2.9% Year-over-Year. Stripping out gas and food, the core CPI rose to 2.4% Year-over-Year, the highest since 2008. Inflation is still tame, but let’s keep a close eye out going forward!

 

UK 2nd Quarter GDP grew at .4%, in line with expectations. Japan’s 2nd Quarter GDP grew at an annualized 1.9%, reversing the contraction from the 1st quarter.

 

This week is light on US economic data and corporate earnings, so the “other” issues may determine the market direction.

 

Question of the Week

 

What is the highest grossing movie of all time in the United States, inflation adjusted?

 

a) Titanic

b) Avatar

c) Star Wars

d) Gone With The Wind

 

Answer to Last Week’s Question of the Week! 

 

The question was: “From 1928 through 2017, which calendar year did the S&P 500 have the greatest percentage gain.”

a) 2009

b) 2003

c) 1954

d) 1933

 

The Answer is –

c) 1954During the “Great Depression”, the Dow fell from 381 to 41.20, a 89.19% decrease. It was in 1954 that the year the Dow finally hit its pre-depression level of 381, and has not looked back since. Let’s hope it stays this way.

 

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Paul Levin CFP®, ChFC®, RICP®

Retirement Income Certified Professional®