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Northern Star Newsletter 3/29/18: Stocks Drop as Tariffs Rise

Message from Jon

This week, my family and I are taking our first family vacation in over 5 years and will be out of the country.  Should you need anything, Nancy or Bambrah will be here to help you along with everyone in our back office.  I will be back on Thursday so there will be no newsletter next week but not to worry, all is well in the kingdom here.

Market Update:

 I have had a few clients and potential clients inquire as to my thoughts on the recent market conditions.

The week we had last week was a knee-jerk reaction to the whole tariff and trade topic and concerns that our trade partners would react causing a trade dispute that would escalate into a trade war. Funny how concerns grow into wars in our modern day media-sensationalistic world in which we live!

We are seeing more volatility spikes in this quarter than previously. As a matter of fact, you can see on the chart below that in 2018, we have seen the 3rd highest level of the VIX in the last 20yr history. Some would draw the conclusion that with high spikes in volatility, comes the aftermath of market crashes and while that would seem to carry some merit, it is not necessarily true during every volatility period.

(StockCharts Disclaimer:*Market data provided by: Interactive Data Corporation. Commodity and historical index data provided by: Pinnacle Data Corporation. Unless otherwise indicated, all data is delayed by 15 minutes. The information provided by StockCharts.com, Inc. is not investment advice. Trading and investing in financial markets involves risk. You are responsible for your own investment decisions.)

As I have previously commented, 2018 is slated to be a very volatile year fraught with peaks and valley's and difficult to navigate. If we show up at the end of this year with a 4-6% positive return, I would consider that a home-run with conditions like the ones we are currently facing!

 According to Bloomberg today, the S&P 500 had a total return value of -3.19% ytd. Now granted, the trading year is only a quarter of the way complete and we still have a lot of grass to cover before we are finished, however, this market and it's relevant condition is not showing signs of improvement and if I was a betting man, I would say the odds of significant improvement said condition was low.

*I will be out of the country from tomorrow (28th) to Apr. 4th but my staff and everyone else at the back-office will be present and at your service.

Till we speak again, enjoy the Final Four!

Jon

Sources:

https://www.bloomberg.com/quote/SPX:IND

http://stockcharts.com/h-sc/ui


Stocks Drop as Tariffs Rise
WEEKLY UPDATE - MARCH 26, 2018


Markets experienced significant declines last week. The S&P 500 lost 5.95%, the Dow dropped 5.66%, and the NASDAQ declined 6.54%.[1] With these losses, all 3 domestic indexes had their worst weekly performance in more than 2 years.[2] International stocks also declined, with the MSCI EAFE giving back 2.64%.[3]

What caused markets to stumble in this way? While various economic reports came out and the Federal Reserve raised rates again, another topic triggered the declines: trade war concerns.[4]

Weekly Focus: Analyzing Tariffs and Trade Wars

What happened?
Last week, President Trump approved new tariffs on China as a punishment for taking American intellectual property. The tariffs could affect as much as $60 billion in Chinese imports - and Trump called this the "first of many" trade actions against the country.[5]

China indicated that it may retaliate and is "looking at all options" on how to respond. Apparently, everything is on the table - including targeting 128 American products, no longer purchasing U.S. Treasuries, and taking legal action through the World Trade Organization.[6]

How did investors respond?
The new China-specific tariffs combined with Trump's steel and aluminum tariffs earlier this month create growing concerns about a trade war.[7] The market declines we experienced last week are largely a reaction to these fears.[8]

What might happen next?
These new tariffs have the potential to create 2 very different results:  
1.  A trade war that stifles global growth
2.  A more even playing field for American companies

A trade war: If the U.S. and China go back-and-forth adding punitive tariffs to each other's products, our economy could suffer. We could experience inflation, slower economic development, and higher interest rates, making expansion and growth harder for U.S. businesses.[9]  

A more even playing field: If the tariffs are successful, U.S. industries could benefit. Some U.S. steel producers are already boosting their production and hiring as the first round of tariffs goes into effect.[10]

Where do we go from here?
The potential for a full-blown trade war exists, which could negatively affect the global economy. But this worst-case scenario is far from certain, and many opportunities exist to calm the rising tension.[11] For now, we will continue analyzing exactly what is happening with tariffs and how different countries react.

In the meantime, if you have questions about how these geopolitical changes could affect your financial life, we are always here to talk.  

ECONOMIC CALENDAR
Tuesday: Consumer Confidence
Wednesday: GDP, International Trade in Goods
Thursday: Jobless Claims, Consumer Sentiment
Friday: U.S. Markets Closed for Good Friday

Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.