What’s moving the market? The media is constantly trying to find a reason for the market’s volatile moves, the most recent being tariff charges by the U.S. and China. The world is really more complicated than that, and trying to assign the moves in the stock market to a single event actually adds to the confusion. Bottom line, the stock market is all about earnings, and the market strength of the past two years was in anticipation of the improving earnings picture that was expected by most people to be seen this year. Many fundamental valuation measures have moved above the longer-term averages, and now the stock market has been “stalling” for several quarters as the fundamentals catch up to higher stock prices. During this time, the noise of the short-term news and opinions will likely keep the daily volatility higher than normal, which may make following the market on a daily basis a more stressful exercise. It’s important to recognize that the short-term and long-term market trends are different things, and not to allow the daily headlines to derail long-term plans.

While the threat of trade wars is worth monitoring, it is easy to lose sign of the fundamental backdrop for equity markets, which remain favourable for now:

• Solid global economic growth in virtually most key parts of the world and leading indicators that confirm more to come
• Global monetary policy remains accommodative, though less so than in recent years with Federal Reserve tightening
• Robust global earnings growth expected for 2018 – double digit in the case of the U.S. (aided by tax reform) and Emerging Markets, and nearly 10% in Canada and Europe
• Inflation that remains contained for now
• Minimal near-term risk of U.S. recession based on variety of indicators

On the issue of trade, it’s a situation worth watching for any signs of it turning into a bigger issue, thereby impacting the growth and earnings trajectory mentioned above. The market is likely anticipating a higher probability of a full-out trade war than is warranted. It is worth noting that the tariffs announced yesterday by the U.S. and the retaliatory tariffs unveiled by China today will not be implemented immediately. The U.S. tariffs are subject to a comment period lasting through the better part of May after which the administration has a minimum 180-day window to decide whether to actually proceed with implementation. For China’s part, they seem to be taking their cue on timing from the U.S. Lastly, it seems unlikely the U.S. administration would seriously push an agenda that would materially impact U.S. growth (and run the risk of completely offsetting all the work they accomplished on taxes).