Global Equity Markets Tick Higher Despite U.S. Proposing $200 Billion in Additional Tariffs

Market Overview

tableSources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morngan as of 09/14/18. Rates and Economic Calendar Data from Bloomberg as of 09/17/18. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.

Happening Now                   

Global equity markets appeared totally indifferent to news that the U.S. was planning to impose additional tariffs of $200 billion on Chinese goods, as global equity indexes turned in impressive results for the week. For example, in the U.S., the S&P 500 Index pushed ahead to a level of 2905, representing a gain of 1.21%, while the Russell Midcap Index gained 0.29% for the week. The Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, followed the lead of its larger counterparts, returning 0.91%. On the international equities front, developed markets outperformed emerging markets increasing by 1.78% and 0.60% respectively. Finally, the 10 year U.S. Treasury yield settled at a level of 2.99%, nearly breaking the 3% ceiling that hasn’t been reached since early August.

This past week’s news cycle was undoubtedly dominated by the storm coverage of Hurricane Florence, but a few notable developments also garnered some attention and are worth reiterating. One such story to grab investor attention, and stimulate an overall sense of optimism, was news that U.S. and Chinese delegations had agreed to resume trade negotiations. This, of course, followed the U.S. threatening to implement tariffs on another $200 billion of Chinese goods. It is important to note, however, that out of the $781 billion in tariffs that have been proposed only $100 billion have actually been implemented thus far.

What’s potentially even more important is that $100 billion in imports only represents 4% of total U.S. imports. Nonetheless, Chinese officials have reportedly threatened to withdraw from negotiations if the U.S. moves ahead with the implementation of an additional $200 billion in tariffs. Our assessment is that U.S. Representatives understand the leverage they hold over the Chinese and are playing the long game. In other words, it shouldn’t surprise investors to witness negotiations once again fall apart, with the hopes that better terms will ultimately be negotiated in the future.

While we’re hopeful that the ultimate end to these tensions will be favorable to the U.S., and create a scenario more accommodative to global economic growth, there will undoubtedly be bouts of volatility in the interim. During such times, portfolio diversification can be important. As a result, we encourage investors to revisit the diversification that may, or may not, be in place within their existing portfolios.

Important Information and Disclaimers

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Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility. These risks are heightened in emerging markets.

There are special risks associated with an investment in real estate, including credit risk, interest rate fluctuations and the impact of varied economic conditions. Distributions from REIT investments are taxed at the owner’s tax bracket.

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MSCI- EAFE: The Morgan Stanley Capital International Europe, Australasia and Far East Index, a free float-adjusted market capitalization index that is designed to measure developed-market equity performance, excluding the United States and Canada.

MSCI-Emerging Markets: The Morgan Stanley Capital International Emerging Market Index, is a free float-adjusted market capitalization index that is designed to measure the performance of global emerging markets of about 25 emerging economies.

Russell 3000: The Russell 3000 measures the performance of the 3000 largest US companies based on total market capitalization and represents about 98% of the investible US Equity market.

ML BOFA US Corp Mstr [Merill Lynch US Corporate Master]: The Merrill Lynch Corporate Master Market Index is a statistical composite tracking the performance of the entire US corporate bond market over time.

ML Muni Master [Merill Lynch US Corporate Master]: The Merrill Lynch Municipal Bond Master Index is a broad measure of the municipal fixed income market.

Investors cannot directly purchase any index.

LIBOR, London Interbank Offered Rate, is the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London.

The Dow Jones Industrial Average is an unweighted index of 30 “blue-chip” industrial U.S. stocks.

The S&P Midcap 400 Index is a capitalization-weighted index measuring the performance of the mid-range sector of the U.S. stock market, and represents approximately 7% of the total market value of U.S. equities. Companies in the Index fall between S&P 500 Index and the S&P SmallCap 600 Index in size: between $1-4 billion.

DJ Equity REIT Index represents all publicly traded real estate investment trusts in the Dow Jones U.S. stock universe classified as Equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy. These companies are REITs that primarily own and operate income-producing real estate.