The Dow Jones Industrial Average fell by about 2%, the S&P 500 fell by about 1%, and the TSX advanced on the week. China's announcement that it may put additional tariffs on U.S. products drove U.S. shares lower. Meanwhile, Canadian markets stayed out of the trade fray, benefiting from solid gains in oil prices as OPEC reached an agreement on Friday to raise output. That same day, however, Canadian inflation and retail sales data disappointed, creating some uncertainty around the timing of the Bank of Canada's plans to raise interest rates. We expect the focus on interest rates and trade negotiations to drive volatility for the remainder of the year, so investors should prepare by rebalancing their portfolios to the mix of stocks and bonds based on their comfort with risk and long-term financial goals.
While Canadian stocks have held up, U.S. stocks moved lower this week as escalating trade tensions between the U.S. and China continued to fuel fears of a trade war. With China announcing that it could retaliate with tariffs on U.S. exports, the Trump administration countered with an announcement that it is identifying higher tariffs on an additional $200 billion in Chinese imports. This tit-for-tat escalation in trade tensions is raising concerns about how much additional trade disruptions could slow global growth and raise prices of goods in the U.S.
Worries that a trade spat between the U.S. and China could intensify into a global trade war are a legitimate source of anxiety for the markets, as we think this issue will continue to prompt spurts of volatility as we move forward. That said, we don't think an all-out trade war is the most likely outcome. Here are a few key takeaways:
Worries about the possible impacts of a trade war with China reflect the importance of trade in the global economy, but they're likely to be temporary. This highlights the importance of remaining invested in an appropriate, well-diversified portfolio based on your risk tolerance, financial goals and time horizon. We expect market volatility to continue, but with ongoing support from healthy economic and earnings growth, pullbacks continue to present compelling buying opportunities, in our view.
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Next week, we'll get a look at GDP numbers and the health of the U.S. consumer, with data on both released on Friday.
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Diversification does not guarantee a profit or protect against loss.
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