Market Beat: The Trade War
March 28, 2018
Most of the recent stock market volatility has been due to fears of a potential trade war developing. Geo-political events have a history of creating market volatility. Markets do not like uncertainty, fear of the unknown can create panic.
We don't live in a world where outcomes are certain anyway, but when geo-political conflicts arise, they can throw the market into turmoil. Sometimes these events can be short lived and at other times they can lead to a real economic downturn.
A couple of similar events in recent memory were the Brexit vote and the Fiscal Cliff issue in Washington. When the United Kingdom was on the verge of voting on exiting the European Union, the global markets declined rapidly. Once the vote was finalized and the news was on the table, global markets rallied, and the bull market continued.
I'm in the United Kingdom right now as I write this, traveling to the old mining district of Cornwall to participate in the 40th annual International Mining Games. The University of Nevada, Reno, is sending a co-ed team that my daughter is on and I'm participating in the alumni division with some old friends from UNR.
The mining games were established in 1978 to commemorate the mining accident at the Sunshine Mine in Idaho, which was the worst mining accident in U.S. history. We'll compete in events like single jack drilling, mucking, track stand, surveying, gold panning, and jackleg drilling. The mining industry in Cornwall goes back to early copper and tin mines in the Roman days.
Britain's economy seems to be doing well post-Brexit. Prices are high here and there are a lot of high end luxury vehicles on the roads.
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A global trade war could potentially be a real concern if it threw the economy into recession. Presently the global economy is strong.
Large multi-national companies could be affected the most. The large multi-nationals benefited from the Tax Cuts and Jobs Act which led to some dividend increases, stock buybacks and employee raises and bonuses.
Small cap companies that don't do a lot of business overseas could perform better if a trade war erupts. A well-diversified portfolio should have exposure to small caps, especially small cap value.
This is one of those events that we'll have to wait and see how it plays out. Our economy is strong and corporate earnings should be good this year.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.
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