First, if you didn’t see our update from Thursday afternoon, check it out here. One day later, we find ourselves in an eerily similar spot to yesterday, with markets selling off again due to continued digestion of the tariff news. The S&P was down another -5.9% today, bringing the total to -9.1% for the week.
This morning brought unwelcome but perhaps not unexpected news. China didn’t take kindly to their new tariff rate and subsequently announced they would, in turn, add a 34% tariff on all U.S. goods. As we said yesterday, there were three likely options on how countries would respond, and this was clearly number two on the list: “Add retaliatory tariffs on U.S. goods, further escalating the trade war.”
Now, this was probably the most likely outcome from China (whose GDP is about 2/3 of the U.S.). They are the closest peer from an economic output perspective, which means they have more power to push back. In addition, they tend to be a bit more aggressive, meeting fire with fire. On the opposite end of the spectrum, Vietnam (whose GDP is about 1/60 of the U.S.) appears to be at the negotiating table in an effort to reduce or eliminate the 46% tariff they were slapped with on Wednesday evening.
Unfortunately, at this moment, it appears this process will go on for longer than anyone would have hoped. However, the good news (if there is any) is that the administration appears to be willing to negotiate. President Trump stated he would be open to discussing the tariffs while speaking with reporters on Air Force One, contradicting his aides who said the tariffs were “not a negotiation.”
This process is going to take time, and there will undoubtedly be ups and downs along the way. These are the times when it pays to stay calm, avoid the doom and gloom headlines, and focus on the long-term strategy. Remember, if you have any specific questions about your situation or if you’d just like to chat, we’re only a phone call away.
Enjoy your weekend.
Also, here are two quick charts that will hopefully lend some additional perspective on what we’ve seen this week.
Markets / Economy
- There was nowhere to hide this week as markets were punished after the tariff announcements. The S&P was down -9.1%, the Nasdaq was down -10.0%, and the small-cap Russell 2000 was down -9.7% on the week.
Stocks
- U.S. equities were in negative territory. Energy and Technology led the decline, while Consumer Staples and Utilities outperformed. Value stocks led growth stocks, and large caps beat small caps.
- International equities closed lower for the week. Emerging markets fared better than developed markets.
Bonds
- The 10-year Treasury bond yield decreased 27 basis points to 3.98% during the week.
- Global bond markets were in positive territory this week.
- Government bonds led for the week, followed by corporate bonds and high-yield bonds.
