Stock market volatility continued on Wednesday, mainly due to worries that tit-for-tat tariff retaliation between the U.S. and China could escalate into a trade war. The U.S. provided more details about its tariffs on $50 billion in Chinese products it plans to impose unless China makes other trade and investment changes. In response, China announced tariffs on $50 billion in U.S. exports, including chemicals, soybeans, planes and autos.
It’s important to note that neither country has imposed their proposed tariffs yet, and they may never be implemented if negotiations are successful. In addition, most of the affected markets, such as grains, are global in nature: If China isn’t buying, the U.S. can simply sell the same product in another region of the world. With that in mind, we still expect news announcements about trade and tariffs will continue to move markets down and up, creating short-term volatility. This week's volatility leaves the Dow and the S&P 500 down about 10% and the TSX is off more than 7% from their peaks in January.
The return to higher stock market volatility may be unsettling, but it's not unusual. We think markets are likely to stay choppy due to changing economic policies, including regulatory actions and the possibility of additional news regarding tariffs. Make sure your portfolio has the right mix of stocks and bonds based on your comfort with risk, time horizon and financial goals. In our view, the underlying fundamentals of global economic and earnings growth remain positive, meaning pullbacks like the current one may be an opportunity to add stocks at lower prices if appropriate for your situation.
Investing in equities involves risks. The value of your shares will fluctuate, and you may lose principal.