News & Insights
July 2018 – Trade Tensions Escalate: How Serious a Threat?
YorkBridge Investment Committee
At the time of this writing, the steady drumbeat of headlines highlighting the threat of trade tariffs have sent shockwaves through the market manifesting in a clear uptick in volatility. But should we be worried? Importantly, successful long-term investing depends heavily on the ability to detach emotional response to the news du jour. Discipline is key when making portfolio decisions. In moments like this we take a step back and reevaluate the fundamentals; here’s what we see: an economy that is accelerating, unemployment near record lows, tame inflation, and the positive impact of tax reform and increased federal spending that is still working its way through the economy, with no serious talk of recession before 2020.
Despite the bellicosity and unpredictability of the administration’s trade threats, most professional market participants, including us, remain confident in the economic trajectory and the support offered to the current market valuations. In fact, one might argue the equity markets appear inexpensive with the S&P 500 forward price/earnings (P/E) multiple having fallen from over 18 in January to just under 16.5, which is below the historical P/E average of 16.8. Cheap? Perhaps not. But wildly overvalued? Not by any measure.
Investors worry we are at peak earnings, that we are late in the economic cycle, that the bull market is nearing its end. While we agree that the economic cycle is extended, global growth is gaining strength as capital expenditures and productivity improve. Earnings could stay strong for a while to come, especially given the massive stimulus from tax reform and spending still working its way through the economy.
Our conclusion? It is too soon to get defensive, and we maintain our current asset allocation stance. Earnings drive stock prices and earnings are growing. The day to day uncertainty of unexpected trade policy announcements does mean more volatility, and if prolonged, could erode business and consumer confidence. For now, however, we are closely monitoring and analyzing events and economic indicators with fierce scrutiny and attention, but remain unconvinced we need to change course as yet.
As always, we welcome hearing your comments and concerns and remain committed to protecting and enhancing your financial well-being.
The Information contained in this document is based on data received from third parties which we believe to be reliable and accurate. YorkBridge Wealth Partners, LLC has not independently verified the information and does not otherwise give any warranty as to the truth, accuracy, or completeness of such third party data, and it should not be relied upon as such. Any opinions expressed herein are our current opinions only. YorkBridge Wealth Partners, LLC is an SEC Registered Investment Adviser under the Investment Advisers Act of 1940 (“Advisers Act”). Registration of an investment advisor does not imply any specific level of skill or training. The information contained in this document is to assist with general planning. Please consult with your own tax advisor and attorney for more specific information.