by Franklin J. Parker, CFA
Markets have steadily deteriorated in the face of a growing trade war. As it stands, US stocks have given back all of their post-election gains. Moreover, we saw a break below the key level of 5800 in the S&P 500 today. While it is never easy to tell, this does signal to me a significant negative shift in markets.
As I have said many times, the underlying economic data is poor, despite corporate earnings being very good. With a trade war in full swing and the security of Europe in doubt, it appears investors are becoming more convinced that such strong earnings are unlikely to continue. Of course, the waning hype in AI is also contributing to investor skepticism.
Overall, I am again urging caution, as I have been for some time. We need to see economic data improving — significant job gains, a jump in retail sales, service sector expansion — for the risks of recession to really go away. That said, markets could stage a comeback were the Fed to jump in with a surprise rate cut, or if the Trump administration suddenly rolls back tariffs in a negotiation.
Chart of the Week
How tariffs affect prices is a complicated question to answer. The Wall Street Journal recently offered a very helpful analysis that demonstrated that the affects are not the same for all types of products. Generally, for products with lots of competition and little brand value, there is almost no shift in consumer prices. However, for products with only one source (like Avacados which are almost exclusively imported from Mexico), prices are likely to shift quite a bit.
This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.