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Bewitched, Bothered and Bewildered – Wall Street Grapples with Trade Uncertainty

Bewitched, Bothered and Bewildered was the name of a popular 1940’s Broadway song. It might also describe the mood on Wall Street following heightened trade uncertainty.  

Bewitched – Trade policy has dominated financial news since U.S. steel tariffs were announced on March 8th.  Now there is concern over a full blown trade war following this month’s tariffs on $34 billion of Chinese goods (see top chart).  Bothered – A recent survey by Strategas Research showed that trade policy is the top concern among institutional investors by a 2-to-1 margin. Bewildered – Few investors today have dealt with rising trade tensions.  Perhaps the most recent significant episode was the 1973 OPEC oil embargo.

One consequence of trade worries is that economically sensitive investments like emerging market equities have struggled in recent months, while sectors like U.S. Growth stocks that are able to grow independently of the economy, have outperformed. While this trend could continue, we would caution against piling on at present valuations (see bottom chart).  

We continue to believe that world leaders will not wittingly escalate trade tensions to the point of causing lasting damage to the economy and stocks.  Even so, we are heedful that the situation could unfold in an unexpected and adverse way.  

 

DISCLAIMER: Past performance does not predict future results. This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.
Brian J. Koble, CFA®
Director of Research

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