Trump, Trade Wars and Stock Markets

It is often said that stock markets climb a wall of worry. Bull markets go up the stairs while Bear markets crash down in a lift!

The psychological nature of investing means that investors, being ever fearful of losing money, will always find something to worry about – politics, international tensions, interest rates, growth, inflation, deflation – almost anything you care to name.

Currently, investors are all in agreement that the biggest “tail risk” is the potential for a trade war. Escalating trade tensions present a threat to global demand and, further out, pose an inflation risk.

In fact, according to a recent Bank of America’s Fund Manager survey, investors haven’t been this focused on a single threat since the Euro crisis of 6 years ago.

But there’s a big difference between today’s trade war fears and the European turmoil of 2012, when fear and volatility resulted in falling stock markets. Six years ago, most asset classes were being slaughtered, but today it is different. There is a little bit of fear and volatility here and there, auto makers have suffered, as have industrial metals such as copper, but mostly the trade anxiety has received only muted reaction from financial markets. In the post financial crisis period, investors have been conditioned to buy the dips and dismiss mainstream worries.

Fiscal cliffs, sovereign-debt turmoil, oil shocks, taper tantrums, whatever the crisis, it always made sense for investors to close their eyes, ignore the story and keep buying and holding. Staying fully invested was the right approach because markets kept on rising and investors were adequately rewarded for the risk taken.

Maybe this time, though, it is a little bit different. It could be that trade tensions don’t manifest themselves as an acute crisis but become a slow-burn shift in the way the world does business. People might wake up one day in the future and realise the landscape for global commerce is very different compared with the last several decades. The question will then be whether the general investing strategies that have worked for years and years will still do so in this new world.

It is a recurring theme but once again the world economy is facing uncertain times. It is, however, important to separate short term market noise from the real deal.

Will President Trump really put world trade and economic growth at risk by entering a full-scale trade war with China, Europe, Canada and other countries? Perhaps he is just acting as “dumb as a fox” whilst negotiating all the time with trade partners and trade deals will be agreed eventually. No one can be sure what Mr. Trump’s bottom line is, but it seems more than likely that he will want to strike new trade deals after further escalation of tensions as he showed with the recent softening of his stance on Europe.

We need to ask whether his bluster and bluffing and the resulting disruption presents a real threat to the global economy or is an opportunity. Some of President Trump’s attacks on the rules-based system may be offensive and unhelpful, but other growth incentives are positive and could lead to more trade, more spending, and more money to promote world growth.

Only time will tell. In the meantime, we at Clarion are ever mindful not only of the ongoing risks, but also of the opportunities. We will be watching carefully to see if investment trends change and if they do we will be ready to take full advantage of the ensuing volatility.

In times of uncertainty it is useful to revisit the basics of what Clarion do for our clients. We were pioneers in the field of true financial planning. We have been helping people realise financial ambitions and personal dreams, for more than 30 years. We do this through certainty and simplicity by constructing bespoke financial plans and lifetime cash flow strategies. Our investment solutions are aligned to each client’s financial plan and personal attitude to risk and reward. We don’t sell products, we advise on solutions. We are here to help create better lives for our clients, their families and those who are important to them.