How to Protect Your Portfolio From Trade Wars
April 9, 2018
By Michael List • Portfolio Manager
This week kicks off a new earnings season, and while analysts are expecting strong earnings growth through the first quarter, traders are likely to focus elsewhere. Where?... half way around the world. Financial markets have been on edge since the first tariffs were announced. Last week concerns elevated when the administration threatened to slap tariffs on $50 billion in Chinese imports. China quickly responded with tariffs of their own targeting nearly $50 billion U.S. goods primarily, agricultural and manufactured products (see below). Financial markets declined initially but rallied back on hopes these tariffs could be resolved by negotiations rather than escalating to a trade war.
The tone changed on Friday, after the administration said it was considering imposing tariffs on an additional $100 billion imports from China. Because the U.S. only exports $130 billion to China, China is unable to match the proposed tariffs of $150 billion. Although, China’s Commerce Ministry spokesman said, “China will follow suit to the end, not hesitate to pay any price, resolutely counterattack and take new comprehensive measures in response.” To quote Ron Burgundy, “Boy, that escalated quickly.” For reference, the U.S. imported $506 billion in goods from China last year.
The trade tensions add more uncertainty and volatility to financial markets. Our primary defense is diversification while we continue to focus on fundamentals and valuations. On the bright side, this week is the kickoff for earnings season. Earnings for S&P 500 companies are expected to grow 16% from a year ago as they realize benefits from tax cuts.
To sum, the year-to-date has witnessed rising ‘headline risk’, and along with it, rising volatility. Diversification helps to dampen the swings, as does a strong commitment to valuation disciplines. We take seriously our charge to preserve value in challenging times. While in the short term anything can happen (and usually does), in the long term our work will help you meet your goals with the level of risk acceptable to you.
Please call your Advisor for a review of your portfolio. If you are not a client today, please contactSecurity National Bank Wealth Management to see how we can work for you.