As usual, geopolitics seems to be driving both the stock- and bond- markets these days, and the raft of new geopolitical news likely spells more good than bad for markets. It’s not mentioned in the attached report from RBC, but some risk is present that the Trump White House will push trade issues harder than expected to distract from other stories, as we’ve seen in the past. On the table currently is a supposed $200 billion of new tariffs on Chinese goods (about half of all trade with China). Our hope is that the general distaste and acute pain that business owners are feeling from the tariffs will cause cooler heads to prevail, but finesse in trade these days seems something out of halcyon dreams.
The Brexit piece here by Frédérique Carrier—our Head of Investment Strategy on the ground in London—is excellent, maybe the best piece I’ve read yet on the “what-ifs” of the Brexit negotiations. It is definitely a must-read.
Craig Bishop’s piece contains one of my favourite quotes about market cycles: “Economic cycles don’t simply die of old age.” As the commentary regarding the length of this bull market [now a record, depending on how you count] starts to hit its usual feverish tone, it is important as always to keep fundamentals in mind while also keeping our eye out for potential spoilers.
Craig’s piece doesn’t mention it, but it’s my view that the trade fight is one of those spoilers, and we have seen some evidence that companies are facing high input prices, supply disruptions, and volume declines. We are keeping our eyes on that—it’s probable that the global economy muddles through, buoyed by low rates and easy money. And we haven’t seen widespread contagion, just preliminary signs. Basically all the economic indicators are flashing “expanding economy” right now. But we also know that tariffs and trade wars are—tautologically—bad for trade, so a nimble step is warranted. Portfolios should be reviewed carefully, and companies with the largest trade risks scrutinized.
Read the full report here: http://bit.ly/McLaughlinCM180907