Stock markets have been taken a beating since August began, so much so, that the huge gains from June and July have almost been wiped.
Here’s what I think is causing this shake up:
- Tariffs – Tariffs are taking a big bite out of profits for our companies and reducing the spending power of our consumers. Regardless of what you hear out of DC, the fact is that the tariffs are being paid by US companies that import goods from other countries. Whether they pass the costs on to the consumers is up to them. Some are eating the tariff costs and some are passing the costs on to us, or they are doing a little of each. Either way, China does not pay our tariffs, we do.
- Trade Wars – Besides China and the EU slapping retaliatory tariffs on U.S. goods that they import, some countries are just halting trade of certain goods with us. For instance, China says they will stop buying our agricultural products altogether. This is probably the most devastating action to be taken against our farmers. They’re already suffering from a late planting season and previous tariffs, but if China shops elsewhere, they might not come back. That would bankrupt a ton of farmers.
- Federal Reserve Versus White House – Because the tariffs and trade wars are slowing our economy, the Fed has to counteract the White House by lowering interest rates to help spur the economy. This is causing uncertainty in the stock and bond markets, which typically causes stocks to fall because stock markets don’t like uncertainty.
China has been taking advantage of us for a long time, so something needs to be done. But the negotiating method that we are using right now has never worked in the long run. These bullying tactics will only produce one winner in this trade war and it will be very hard for us to outlast China. They have a much larger population that live on a lot less than we do.
The good news is that with elections coming up in the fall of 2020, the White House will have to make some trade concessions soon or we’ll be seeing a moving van there next November.
If you want to find out what to do when markets tank like they are right now, take a look at what I wrote back in January of this year, which is very applicable to our current situation: What To Do About This Crazy Market
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
