The recent trade announcement between the U.S. and China reverses many of the tariffs that rattled financial markets beginning in April. Based on the massive gains for stocks yesterday, it’s safe to say the market is taking the news VERY well 😉.
This agreement, which lasts 90 days, lowers U.S. tariff rates on China from 145% to 30%, and China’s rates on U.S. goods to 10%. Along with tariff pauses on other trading partners, and a newly announced trade deal with the U.K., markets are hopeful that a drawn-out trade war is now off the table. What does this changing market narrative mean for long-term investors?
What markets dislike most are uncertainty and negative surprises. This is because markets often react to the worst-case scenarios immediately and adjust as more information becomes available. While the unexpected size and scope of the April 2 tariffs sparked a sharp market downturn, the recovery over the past several weeks has also been swift.
Markets are close to where they started the year and slightly above their pre-April 2 tariff announcement levels. This is a pattern that follows many other historical examples in which recoveries can occur once there is greater clarity. Recent events are another reminder that maintaining a long-term investment perspective is important during periods of uncertainty.
The U.S.-China agreement is a positive sign a broader deal can be reached
The latest tariff agreement between the U.S. and China is positive because it removes a significant source of market uncertainty. It sets the U.S. reciprocal tariff on Chinese goods to 10% while maintaining the 20% tariff related to the fentanyl crisis put in place earlier this year. While the situation is still evolving, this agreement paves the way for a longer-term trade deal between the world’s two largest economies and de-escalates tensions. So, while tariff rates are higher than in the past, the worst-case scenario is now less likely.
With the benefit of hindsight, recent events mirror the trade tensions in 2018 and 2019 during the first Trump administration. In both cases, the administration’s goal has been to achieve new trade deals by using tariffs as a negotiating tool, with the stated aim of closing the U.S. trade deficit with major trading partners. Five years ago, this resulted in the “Phase One” trade agreement with China, the USMCA (United States-Mexico-Canada Agreement), and other deals.
There are many intertwined objectives in these trade policies, including a focus on manufacturing jobs, protecting intellectual property, controlling immigration, and more. Today, the key difference is that the administration has gone much further with tariff threats than many investors and economists had anticipated.
Still, the recently announced trade deal between the U.S. and the U.K. is evidence that previous patterns may apply here as well. That agreement sets a baseline 10% tariff rate on U.K. goods, with specific provisions allowing up to 100,000 imported cars at this level as well as exemptions for steel and aluminum.
The economy has been resilient despite trade uncertainty
Of course, new trade deals with China and many other countries are not yet final, and day-to-day headlines could continue to drive market swings, especially if previous tariff pauses expire. An important reason markets have focused so heavily on tariffs is the impact on inflation and economic growth. This was reflected in the first quarter’s GDP figure which showed a slight economic contraction as businesses stockpiled imported goods ahead of tariff deadlines. Greater clarity will likely help both consumers and businesses.
In this environment, what else could go right? First, many economic indicators remain solid. The latest jobs report showed the economy added 177,000 positions in April, above expectations of 138,000. The unemployment rate held steady at 4.2%, continuing a period of stability that began last May. The strong job market helps to offset concerns that tariffs and uncertainty will impact consumer spending.
Meanwhile, inflation continues its gradual deceleration toward the Fed’s 2% target, with the latest Consumer Price Index figure coming in at 2.4% year-over-year. This deceleration has been supported by falling oil prices which recently reached four-year lows. Cheaper oil, driven in part by tariff-related volatility, helps to lower costs for consumers and can be a boost to the economy, all things equal.
The recent U.S.-China agreement also reduces the pressure for immediate Fed policy changes. Market-based measures still expect the Fed to cut rates further this year, but these expectations have fallen to only two or three cuts, possibly beginning in July or September. The Fed, which recently kept rates steady between 4.25% and 4.5%, appears to be taking a “wait-and-see” approach, rather than reacting to near-term trade, market, and economic news.
Market recoveries often occur when they’re least expected
While there are still many risks to the market, the last several weeks show how quickly the narrative can change. By their very nature, markets anticipate worst-case scenarios. During times of negative headlines and market pullbacks, it’s difficult to imagine that the market will ever recover. So, while understanding risks is always prudent, it should not come at the expense of long-term portfolio positioning.
The accompanying chart shows how market corrections have behaved since World War II. While the average correction experiences a decline of 14%, it often recovers in as little as four months. Most importantly, it can often rebound when it’s least expected, as we’ve experienced following recent progress on trade negotiations.
Those investors who overreact to early signs of volatility may find that they are not appropriately positioned, especially with respect to their financial goals.
Concerns or questions about how your investment portfolio will hold up in the current market environment? Contact Financial Synergies today.
We are a boutique, financial advisory and total wealth management firm with over 35 years helping clients navigate turbulent markets. To learn more about our approach to investment management please reach out to us. One of our seasoned advisors would be happy to help you build a custom financial plan to help ensure you accomplish your financial goals and objectives. Schedule a conversation with us today.
More relevant articles by Financial Synergies:
Blog Disclosures
This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own financial advisors as to legal, business, tax, and other related matters concerning any investment.
The commentary in this “post” (including any related blogs, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Financial Synergies Wealth Advisors, Inc. employees providing such comments, and should not be regarded as the views of Financial Synergies Wealth Advisors, Inc. or its respective affiliates or as a description of advisory services provided by Financial Synergies Wealth Advisors, Inc. or performance returns of any Financial Synergies Wealth Advisors, Inc. client.
Any opinions expressed herein do not constitute or imply endorsement, sponsorship, or recommendation by Financial Synergies Wealth Advisors, Inc. or its employees. The views reflected in the commentary are subject to change at any time without notice.
Nothing on this website constitutes investment or financial planning advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. It also should not be construed as an offer soliciting the purchase or sale of any security mentioned. Nor should it be construed as an offer to provide investment advisory services by Financial Synergies Wealth Advisors, Inc.
Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Synergies Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
Any charts provided here or on any related Financial Synergies Wealth Advisors, Inc. personnel content outlets are for informational purposes only, and should also not be relied upon when making any investment decision. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Information in charts have been obtained from third-party sources and data, and may include those from portfolio securities of funds managed by Financial Synergies Wealth Advisors, Inc. While taken from sources believed to be reliable, Financial Synergies Wealth Advisors, Inc. has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. All content speaks only as of the date indicated.
Financial Synergies Wealth Advisors, Inc. is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Financial Synergies Wealth Advisors, Inc. and its representatives are properly licensed or exempt from licensure. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
See Full Disclosures Page Here
Special Update: What U.S.-China Trade Progress Means for Investors
The recent trade announcement between the U.S. and China reverses many of the tariffs that rattled financial markets beginning in April. Based on the massive gains for stocks yesterday, it’s safe to say the market is taking the news VERY well 😉.
This agreement, which lasts 90 days, lowers U.S. tariff rates on China from 145% to 30%, and China’s rates on U.S. goods to 10%. Along with tariff pauses on other trading partners, and a newly announced trade deal with the U.K., markets are hopeful that a drawn-out trade war is now off the table. What does this changing market narrative mean for long-term investors?
What markets dislike most are uncertainty and negative surprises. This is because markets often react to the worst-case scenarios immediately and adjust as more information becomes available. While the unexpected size and scope of the April 2 tariffs sparked a sharp market downturn, the recovery over the past several weeks has also been swift.
Markets are close to where they started the year and slightly above their pre-April 2 tariff announcement levels. This is a pattern that follows many other historical examples in which recoveries can occur once there is greater clarity. Recent events are another reminder that maintaining a long-term investment perspective is important during periods of uncertainty.
The U.S.-China agreement is a positive sign a broader deal can be reached
The latest tariff agreement between the U.S. and China is positive because it removes a significant source of market uncertainty. It sets the U.S. reciprocal tariff on Chinese goods to 10% while maintaining the 20% tariff related to the fentanyl crisis put in place earlier this year. While the situation is still evolving, this agreement paves the way for a longer-term trade deal between the world’s two largest economies and de-escalates tensions. So, while tariff rates are higher than in the past, the worst-case scenario is now less likely.
With the benefit of hindsight, recent events mirror the trade tensions in 2018 and 2019 during the first Trump administration. In both cases, the administration’s goal has been to achieve new trade deals by using tariffs as a negotiating tool, with the stated aim of closing the U.S. trade deficit with major trading partners. Five years ago, this resulted in the “Phase One” trade agreement with China, the USMCA (United States-Mexico-Canada Agreement), and other deals.
There are many intertwined objectives in these trade policies, including a focus on manufacturing jobs, protecting intellectual property, controlling immigration, and more. Today, the key difference is that the administration has gone much further with tariff threats than many investors and economists had anticipated.
Still, the recently announced trade deal between the U.S. and the U.K. is evidence that previous patterns may apply here as well. That agreement sets a baseline 10% tariff rate on U.K. goods, with specific provisions allowing up to 100,000 imported cars at this level as well as exemptions for steel and aluminum.
The economy has been resilient despite trade uncertainty
Of course, new trade deals with China and many other countries are not yet final, and day-to-day headlines could continue to drive market swings, especially if previous tariff pauses expire. An important reason markets have focused so heavily on tariffs is the impact on inflation and economic growth. This was reflected in the first quarter’s GDP figure which showed a slight economic contraction as businesses stockpiled imported goods ahead of tariff deadlines. Greater clarity will likely help both consumers and businesses.
In this environment, what else could go right? First, many economic indicators remain solid. The latest jobs report showed the economy added 177,000 positions in April, above expectations of 138,000. The unemployment rate held steady at 4.2%, continuing a period of stability that began last May. The strong job market helps to offset concerns that tariffs and uncertainty will impact consumer spending.
Meanwhile, inflation continues its gradual deceleration toward the Fed’s 2% target, with the latest Consumer Price Index figure coming in at 2.4% year-over-year. This deceleration has been supported by falling oil prices which recently reached four-year lows. Cheaper oil, driven in part by tariff-related volatility, helps to lower costs for consumers and can be a boost to the economy, all things equal.
The recent U.S.-China agreement also reduces the pressure for immediate Fed policy changes. Market-based measures still expect the Fed to cut rates further this year, but these expectations have fallen to only two or three cuts, possibly beginning in July or September. The Fed, which recently kept rates steady between 4.25% and 4.5%, appears to be taking a “wait-and-see” approach, rather than reacting to near-term trade, market, and economic news.
Market recoveries often occur when they’re least expected
While there are still many risks to the market, the last several weeks show how quickly the narrative can change. By their very nature, markets anticipate worst-case scenarios. During times of negative headlines and market pullbacks, it’s difficult to imagine that the market will ever recover. So, while understanding risks is always prudent, it should not come at the expense of long-term portfolio positioning.
The accompanying chart shows how market corrections have behaved since World War II. While the average correction experiences a decline of 14%, it often recovers in as little as four months. Most importantly, it can often rebound when it’s least expected, as we’ve experienced following recent progress on trade negotiations.
Those investors who overreact to early signs of volatility may find that they are not appropriately positioned, especially with respect to their financial goals.
Concerns or questions about how your investment portfolio will hold up in the current market environment? Contact Financial Synergies today.
We are a boutique, financial advisory and total wealth management firm with over 35 years helping clients navigate turbulent markets. To learn more about our approach to investment management please reach out to us. One of our seasoned advisors would be happy to help you build a custom financial plan to help ensure you accomplish your financial goals and objectives. Schedule a conversation with us today.
More relevant articles by Financial Synergies:
Blog Disclosures
This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own financial advisors as to legal, business, tax, and other related matters concerning any investment.
The commentary in this “post” (including any related blogs, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Financial Synergies Wealth Advisors, Inc. employees providing such comments, and should not be regarded as the views of Financial Synergies Wealth Advisors, Inc. or its respective affiliates or as a description of advisory services provided by Financial Synergies Wealth Advisors, Inc. or performance returns of any Financial Synergies Wealth Advisors, Inc. client.
Any opinions expressed herein do not constitute or imply endorsement, sponsorship, or recommendation by Financial Synergies Wealth Advisors, Inc. or its employees. The views reflected in the commentary are subject to change at any time without notice.
Nothing on this website constitutes investment or financial planning advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. It also should not be construed as an offer soliciting the purchase or sale of any security mentioned. Nor should it be construed as an offer to provide investment advisory services by Financial Synergies Wealth Advisors, Inc.
Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Synergies Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
Any charts provided here or on any related Financial Synergies Wealth Advisors, Inc. personnel content outlets are for informational purposes only, and should also not be relied upon when making any investment decision. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Information in charts have been obtained from third-party sources and data, and may include those from portfolio securities of funds managed by Financial Synergies Wealth Advisors, Inc. While taken from sources believed to be reliable, Financial Synergies Wealth Advisors, Inc. has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. All content speaks only as of the date indicated.
Financial Synergies Wealth Advisors, Inc. is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Financial Synergies Wealth Advisors, Inc. and its representatives are properly licensed or exempt from licensure. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
See Full Disclosures Page Here
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