When Mr. Trump was elected President, I cautioned against panic (although I was feeling some of it myself). I wrote the vibrancy of the global economy and the securities markets that reflect it transcend any U.S. administration and its policies. Privately, I remember thinking that even though that might be true, a Trump administration would almost assuredly create chaos and an increase in short term market volatility.
But that didn’t happen – at least not right away. Instead, the markets focused on an improving economy both in the U.S. and abroad and yielded a banner year in 2017. So far, the narrative for 2018 is different, and yes, Trump is finally causing the economic and market chaos I feared.
What the markets fear today is a Trump-induced tariff and trade war that could result in hobbling global trade and hurting business profits worldwide. Earlier this year, Trump announced import tariffs on steel and aluminum. Initially panicked, market sellers later discovered the impact on global trade was actually quite small, due to negotiated exemptions for major steel producing nations like Canada and South Korea—plus the Eurozone and Mexico.
Now, the Trump target is China. Shortly after the U.S. administration announced tariffs of 25% on Chinese goods worth an estimated $50 billion, The Wall Street Journal is reporting today (April 4) that China has retaliated – imposing tariffs of its own on high-value U.S. exports, including automobiles, airplanes, and soy beans. Traders have feared this retaliation against American products sold abroad, and are putting a lower value on the large multinational companies that account for most exports and make up most of the major indexes. Stock prices are headed down – for the moment.
Of course, the Cambridge Analytica scandal has also disrupted the markets of late, with admissions that private information on 50 million people has been pilfered. Shares of Facebook* have taken a beating, adding to the current chaos.
What’s remarkable about the selloff is that it comes amid some very good news more broadly about the U.S. economy. Durable-goods orders jumped 3.1% in February, sales of newly-constructed homes were solid, and Atlanta Fed president Raphael Bostic announced that there were “upside risks” in GDP and employment. Translated, that means the economy is looking too good to keep interest rates as low as they have been—which means this is a curious time to be selling out and heading for the investment sidelines.
All of which points to some wisdom SRI investors do well to keep in mind. What we are seeing now is short-term chaos causing short-term market volatility. Yes, we should all be concerned about the incompetency (and possibly worse) currently emanating from the White House. Yet cooler heads might well intervene to halt an all-out trade war. The global economy will still transcend ill-advised U.S. foreign policy in the longer run, and it is in the longer run that well-managed SRI portfolios will continue to be rewarded.
This blog loosely adapted from a Bob Veres draft, with permission.
*Mention of specific companies should not be construed as a recommendation to invest. Consult with your financial advisor for specific investment advice.