Global Stocks Fall Due to Rising U.S.-China Trade Tensions

By: Kate Warne, Ph.D., CFA May 13, 2019

Stocks fell sharply on Monday (May 13) as China announced higher tariffs on $60 billion of imports from the U.S., retaliating for the U.S. tariff hikes imposed on May 10. Although China's higher tariffs won't go into effect until June 1, the U.S. is also considering raising tariffs on another $300 billion of Chinese imports.

Worries about the impacts of higher tariffs and heightened trade tensions weighed on stocks, with the Dow closing on Monday down 2.38% and the S&P 500 off 2.41%. In contrast, bond prices rose, helping buffer portfolios and lowering the rate on the 10-year U.S. Treasury bond to 2.40%.

Will There Be a Trade Deal?

After months of apparent progress toward reaching an agreement, last week's rift in the U.S.-China negotiations was unexpected. However, the issues involved are complex, and many still need to be resolved, so progress is likely to be slow and difficult. We continue to believe reaching a trade deal is in both countries' interests, but it is likely to take much longer than previously expected. Some of the reasons we believe both sides would like to reach an agreement include:

  • China wants U.S. tariffs removed.
  • The U.S. wants better protections for intellectual property.
  • The U.S. wants to reduce some of China's market restrictions among other demands.

Removing the tariff increases could reverse the drop in U.S.-China trade over the past year, could combat slowing economic growth in both countries, and would be good news for the specific companies and sectors most affected (such as agriculture). In addition, we believe a resolution to U.S.-China trade tensions could be a catalyst for a rebound in global trade and better global growth.

Uncertainty and Investing

A return to higher market volatility and elevated trade tensions hasn't altered the positive fundamentals of economic and earnings growth, still-low interest rates and fewer global disruptions that have supported rising stock prices this year. We think they'll continue to be the main drivers over time, but uncertainty remains high, and trade and tariff concerns may continue to prompt unexpected market moves.

That's why it's important to remember that your portfolio is designed to handle short-term ups and downs. Maintaining the mix of equities and fixed income that's appropriate for your long-term situation can keep you well prepared for more volatile markets ahead.

For more information or to open an account, set up a face-to-face meeting with an Edward Jones financial advisor in your community.

Important Information:

Past performance does not guarantee future results.

Diversification does not guarantee a profit or protect against loss in a declining market.

Investors should understand the risks involved in owning investments, including interest rate risk, credit risk and market risk.

The value of investments fluctuates, and investors can lose some or all of their principal.

Special risks are inherent to international investing, including those related to currency fluctuations and foreign political and economic events.

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