Markets retreated last week as volatility has continued to be the theme. Will trade wars continue to dominate the market landscape?
The current environment is fraught with uncertainty and the markets do not tend to respond well to that. They loved tax reform, for example, as it increased margins for US corporations substantially. They also like the repeal of Dodd Frank as it loosens regulations on the financial sector. What the market does not like is uncertainty. When tax reform was less certain, markets ebbed and flowed. When Dodd Frank reform loses steam, so does the market.
The uncertainty we are plagued with right now is the result of tariff considerations. After tariffs of 25% on steel and 10% on aluminum, the Trump administration has continued with additional tariffs focused on China. These tariffs will likely help American manufacturing; however, the markets are more concerned with current profitability and potential sanctions against US companies.
Impacting markets, in addition, last week were softer than expected retail sales which caused revisions in 1st quarter GDP forecasts. The good news is that current forecasts of GDP are still in positive territory (1st quarter GDP is commonly in negative territory, so again, at least a positive prediction).
While the current actions are understandable, a cooling off period for additional action would likely benefit the markets to reestablish stability.
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