Will The Trump Trade War Sink The Stock Market?

Apr 3, 2018

Will The Trump Trade War Sink The Stock Market?

So here’s an understatement…there is some real volatility affecting the stock market these days.

In the last couple of months, the broader stock market is down around 12 or 13 percent from the highs. And from the beginning of the year the markets are down around 3 or 4 percent.

Some of the reasons for the decline? There’s technology stocks being overvalued, social media stocks getting pummeled for privacy concerns, and interest rates moving higher. But we believe the biggest reason for the recent stock market move is the tariffs that President Trump is putting on foreign goods. And exacerbating that is the indiscriminate selling of stocks, especially through Exchange Traded Funds, many of which have the large tech stocks as big holdings.

Will the tariffs be the reason the market will fall significantly from here?

Before we answer that, let’s take a look at what’s happening.

Trump says that other countries, especially China are already putting large tariffs on U.S. goods, and have been for many years. If you don’t know, a tariff is just another word for a tax. Trump is saying that those tariffs on U.S. products are creating an uneven playing field that puts the U.S. at a disadvantage. And to be honest, he is correct.

HIS solution is to put tariffs on foreign goods, especially those coming from China. This is causing China to up the ante with more tariffs on U.S. goods.

Let’s be clear, trade wars are never a good thing. Stock market investors and traders get very nervous when they start talking trade wars. Will this cause additional major erosion to the stock market going forward?

Certainly anything is possible, but the big cross current here is that we believe earnings for the first quarter, which will start being reported in the next couple of weeks, will come in pretty strong. Most of the economic metrics we have seen recently still show a strong economy. So unless corporate earnings are much worse than we think they will be, or the economic numbers start sliding, we believe the downside for the broader market is somewhat limited.

If you are a stock picker, there are some very good companies that are starting to look fairly inexpensive.

We do want buyers to beware that if indiscriminate selling continues, in other words panic starts taking over, it can take the market down significantly. But for the long-term investor, we believe the risk/reward is starting to look more favorable again.

For more market, investing and financial planning videos, please check out our website at wwmfinancial.com. And as our sister company, Savvy Women Wealth Management says, Savvy Up!!

Steve Wolff is a Managing Partner at WWM Financial in Carlsbad California. Steve can be reached at 760-692-5190 or Steve@WWMFinancial.com.