Back in the 60s and the 70s, there was a heavy weight world champion boxer named Joe Frasier. Joe was relentless in his style and would simply out hit his opponent. One of his famous quotes was, “Everybody has a plan until they get hit”.
Last Friday, the equity markets got “HIT” in the ongoing trade war the United States now finds itself in with China. For the longest time, we have known that China was stealing US intellectual property as well as practicing unfair trade strategies. Presidents from Bill Clinton all the way to Obama did not deal with the situation for whatever reason. As we all know, President Trump, a businessman and not a politician, has chosen to say enough is enough. Hence, the trade war. Since equity markets don’t like uncertainty, the reaction was pretty strong on Friday. The attached article really helps understand why this is a fight worth having.
While this fight might go on for a while, there are some things on the horizon that could be very helpful. First, when congress returns, they could pass the renegotiated North American Free Trade Agreement, now referred to as the USMCA treaty. Second, should Britain finally exit from the European Common Market on October 31st, the US could sign a new trade agreement with the Brits on November 1st.
In the meantime, here are a couple of facts you may find interesting. Currently, the S&P 500 has a composite dividend rate of about 1.9%. The 10-year treasury bond is currently paying 1.5%. And, in Europe and Japan, negative interest rates are being offered. You give a bank say, $10,000 and at the end of the term of the bond, the bank gives you back something less than $10,000. I’m not sure where all this is going but the money managers for our portfolios are staying the course.
As always, should you have any questions or wish to meet with me, please just email or call the office. In the meantime, have a super week.