Is President Trump steering the United States into an irreversible trade war with its major trading partners, or is he one of the great negotiators as he claims?
Only time will tell how good of a negotiator President Trump is but in the interim his negotiation style has influenced stock market volatility considerably. Diversification is supposed to reduce volatility in an investment portfolio. But geographic diversification which is buying stocks in different regions of the world, is currently having limited benefit. Right now most global stock markets are showing high correlation to each other on sell offs and that’s because global trade has become a key part of many economies and the main players in these trade issues have the largest economies.
Diversifying by asset class (cash, bond and stocks) is also not providing the same protection right now as in the past, in that bonds and stocks are reacting roughly the same way to economic news. This will change if trade protection worsens and economies suffer, stocks should be negatively affected while investment grade bonds should have a positive reaction.
The increase in market volatility is not having a major effect on the asset class breakdown I am using. We are keeping the same bond and stock weighting in most portfolios. The stock selection has gotten a bit more conservative over the past year and will stay that way as long as market volatility remains high. I expect global stock markets to continue to move higher over the next twelve months as global trade issues get slowly resolved. Stock market volatility will probably remain higher than in the past few years, and will be something we will just have to live with.
As always if you have any questions or concerns about your investments, please contact me.
Best Regards
Bill Achtymichuk, CIM, FSCI, CFP®
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