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U.S. Stocks and Bond Yields In Reaction To Trade Speculation

June 3rd, 2019

 

The trade dispute between America and China has been on the headlines for quite some time, and for good reason at that. It not only has been a dramatic sequence of events, it also has begun to affect both economies, as well as the worlds economy. This has caused investors and analysts to speculate both positive and negative futures on this situation. This blog is to help inform you of the effects of this dispute on our economy, especially in the area of Stocks and Bond Yields.

Stocks, bond yields, and commodities declined around the world on Wednesday. This is mostly due to negative speculation on the global economy of industry from the trade dispute. Many firms are lowering their riskier assets, this shows when they started of the day with a downturn. The Dow was down more than 400 points and oil prices down 3%. They barely recovered what they could by the end of the day. It doesn’t help that Trump recently stated that a near-term deal between the Washington and Beijing is not very likely.

As far as the industry economy, China’s reaction to the U.S. tariffs has had a huge impact globally. Reports from China state that they intend to cut exports of rare-earth metals. These metals are essential to the electronics industry as well as military projects. These reports have been the latest trigger to trade-related volatility. Paul Zemsky, chief investment officer of multi-asset strategies and solutions at Voya Investment Management, has made predictions as to the future of the economy. He stated that even though the industrial side of the world economy is slowing down, the U.S. will be able to push through these tough times. However, the future of the world economy is questionable. He even stated that his firm has lowered the amount of risk across their portfolios.

Although Zemsky presumes that the U.S. is going to come out clean, we are still getting hit in our industry. The Dow closed down 0.9%, which is its lowest level since February 11th, following the 6th decline in 8 sessions. The S&P dropped 0.7%, with each of its 11 sectors taking a loss. And the Tech-heavy NASDAQ is down 0.8%. Our stocks are seeing the negative effects of this trade war, but we also have seen these negative effects in our bond yields. The yield on the benchmark 10-year U.S. treasury note (which is tied to interest rates and mortgages) dropped to 2.238% from 2.268% just a day earlier. This is the lowest it has been since September of 2017. Part of the reason for this is that investors are seeking safety in Treasuries lately. These drops in long-term bond yields have hurt shares of lenders, although bank stocks were able to flatten out on Wednesday. Internationally, the brightest red flag comes from Germany. Europe’s largest economy has been seeing the first waves of the U.S. China trade dispute. Their jobless rate rose in May to everyone’s surprise. This has fueled concerns to the economic health of the rest of Europe.

The economy of industry has suffered with the cornerstones of construction and manufacturing declining on Wednesday as well. U.S. crude oil declined another 0.6% after falling more than 3%. Metals also felt the heat with copper futures melting down another 1.1%. The more alarming fact is that both commodities are down 10% or more from their 2019 peaks. This does not bode well for the future of this industry, especially in the eyes of investors. On the brighter side, U.S. GDP has risen 3.2% to the annual rate, despite the slowing growth in consumer and business spending. There are many experts however, that see this as the eye before the storm. They see Germany as the tell-tale sign that the overseas troubles are eventually going to hit us domestically, especially as the tariff war escalates, threatening the near 10-year U.S. economic expansion.

With all this negative speculation, there are still some that have been able to maintain a positive outlook on the future. Mr. Cordaro of Regent Atlantic stated, “If interest rates are declining again, the relative expected return of stocks vs. bonds keeps getting more attractive”. This statement was followed by the news that they have been maintaining their allocation to stocks in their portfolios. We may be feeling the first waves, but for now we are alright. This means that now is the best time to make sure that you and your funds are prepared for whatever may come. Proper planning is essential to a proper retirement. Remember, Plan Smarter & Live Better.