No—but the President did move forward with long-promised anti-China actions which establish new tariffs on almost $60 billion in Chinese imports. As expected, China immediately announced a list of 128 U.S. products as retaliation targets.
The stock market went down very sharply on Thursday and Friday, continuing its slide for the week as market participants continue to digest the ramifications of a trade war between the U.S. and China. Closing at 23,533.20, the Dow Jones Industrial Average is at its lowest level since November and clearly in official correction territory being down almost 12% from its 52-week high. Last week was the worst week for the averages since January of 2016.
Over the past few weeks, we have discussed tariffs, volatility and suggestions for personal review. News – The Trust Company Importantly, while corrections on average occur once every year, with an average pullback of -13.8%, US markets have not seen an average market correction (over -13.8%) in over 9 years. While a -12% market decline might feel “out of the ordinary”, the reality is that such declines are a common occurrence over long-term market cycles, are expected and a broader sign of a healthy functioning marketplace.
We want to be clear, trade wars can have severe consequences. A famous example would be the Smoot-Hawley Act passed by Congress in 1930 which many argued deepened the Great Depression. The legislation was designed to protect American farmers. More recently, President Bush raised steel tariffs in 2002 negatively impacting GDP and employment. The World Trade Organization, the arbiter of international trade disputes, ruled that the Bush tariffs were illegal.
Domestically, the Federal Reserve has a dual mandate of maximum employment, stable prices, and moderate long-term interest rates. A full-scale trade war creates tension between those mandates and could alter the course of future actions.
So what actions should you take? First, make certain that your portfolio is aligned with your long-term goals and rebalance if necessary. We definitely are not market timers, but we do believe this is an excellent time to assess your cash needs and raise cash, if needed, for the next few years.
We continue to believe a long-term, all-weather, diversified approach will help you achieve long-term investment goals and mute volatility along the way.