Trade tariffs have started to be implemented over the past couple of months and are showing some signs of accelerating. Yet other than a late June 2018 sell off the global stock markets have held up quite well. The reason for this appears to be that investors feel this is a US government bargaining ploy and will not turn into a full-fledged global trade war.
Currently tariffs are being applied to a small percentage of goods traded between countries globally. Also exports to the US and to some extent China make up a limited amount of their GDP (gross domestic product), estimated to be 13% for the US. This being said a global trade war would cause economic instability especially for more exporting countries like Canada.
At this time the US and to a lesser extent Canada’s economies are performing well and appear to be absorbing the tariffs and slowly rising interest rates in both countries. Corporate earnings continue to improve providing support to the North American stock markets. Rising oil prices are becoming a concern for certain industries and the consumer especially in the US, but unlike past oil price spikes energy costs are much lower now as a percentage of GDP and getting lower. Technology has made vehicles and many other products much more energy efficient. Also the US is now one of the largest energy producers in the world where domestic production has replaced imports keeping more of the money spent on energy in the US to be borrowed, invested or spent.
In summary, good economic growth and positive corporate earnings have been able to offset rising interest rates and trade tariffs, allowing stock markets to slowly rise. I expect this to continue as trade agreements slowly get completed and interest rates stabilize. We continue to be mostly invested with a conservative bias.
As always if you have any questions or comments please feel free to contact me.
Bill Achtymichuk
