With a potential government shutdown around the corner, the U.S. putting pressure on China and the market officially entering correction territory, this week was a roller coaster of emotions. Read on to get our take on these stories and see how you can manage volatility.
Signs of De-Escalation with China? Equity markets felt a bit of relief this week as China gave modest – but not insignificant – indication of making economic concessions as the U.S. keeps up pressure. The highest profile move was China’s announcement that they would draft a replacement for the “Made in China 2025” plan, which is essentially a state-sponsored blueprint for making the country the leader in high-tech industries like robotics, information and clean-energy cars. Being ambitious isn’t the problem – it is how China intends to go about getting there, from state subsidies to forced technology transfers to active measures disallowing foreign competition. While every other major economy abides by generally fair-trade rules and practices, China operates on an entirely different plane of state sponsored versus market-based economics. As part of the minor breakthrough, the U.S. agreed to delay plans to raise tariffs from 10% to 25% on $200 billion of Chinese goods, and China said it would reduce tariffs on U.S. autos to 15% from the current 40% in addition to stepping up agricultural purchases for products like soybeans. These moves mark progress, but a stark reality exists, in our view: China agreeing to redraft Made in China 2025 does not mean they’re moving away from a state-sponsored growth and development model, and subsidies are likely to remain – leaving an unlevel playing field for foreign competitors.1
How Can You Get Through Volatility?
One of the most important financial tools to help ensure that your portfolio is properly allocated to help manage your assets through heightened volatility is knowing your investor profile and risk tolerance.
If you have $500,000 or more to invest, our free Zacks Investment Management Proprietary Investor Profile Questionnaire (IPQ)2 can help you assess your risk tolerance. It takes just a few minutes and there is absolutely no obligation.
Click here to take your free IPQ today
Meanwhile, Chinese Cyber-Espionage Continues – Almost as-if to negate any positive takeaways from the small trade concessions with China, news also broke this week that China was suspected in the massive Marriot Starwood Hotels hack, and federal investigative officials also told U.S. senators that corporate espionage from foreign actors had reached a critical national and economic security threat. Again, a stark reality remains when it comes to China: they continue to exploit U.S. technology in an effort to advance their own economy.3
The Utter Chaos that is Brexit – The Brexit saga continues apace, with no clear light at the end of the tunnel. In a sign of near political collapse, British Prime Minister Theresa May barely survived a confidence vote where members of her own party turned against her over her leadership in Brexit. The negotiated deal May has managed to work out with the European Union is perhaps the only deal she will be offered, as the E.U. has signaled they will not renegotiate the terms. Conservative lawmakers backed Mrs. May by a vote of 200-117, but the scale of the dissent leaves it fairly clear to market participants that she has essentially no chance of getting the current Brexit deal through Parliament, and also increases the prospect that any deal she brings forward would be rejected. The market appears to be bracing for two outcomes: Britain leaving the EU without a deal — a course that would surely have serious negative economic impact – or not leaving the EU at all. The deadline for investors to watch is March 29, when some kind of reckoning will occur – if there is no deal, businesses on both sides will be scrambling to devise new supply-chain workarounds and perhaps alternate vendors for goods and services.4
Heading Towards a Holiday Government Shutdown? The odds of a government shutdown increased this week, as a very public meeting between President Trump and Democratic leaders Nancy Pelosi and Chuck Schumer made waves in the media circuit. The three met in the Oval Office this week to discuss funding for the border wall (to which the Democrats objected) and President Trump’s insistence that he would own a government shutdown if it meant doing so for the sake of border security. House Minority Leader Nancy Pelosi and Senate Minority Leader Chuck Schumer presented President Trump with two options, both of which would extend current funding for Homeland Security but neither of which would give him the $5 billion asked for the wall. The impasse appears to have emboldened the positions on both sides, reducing the odds of a clean bill making its way to the president’s desk in the next two weeks.5
How to Deal with Volatility – Volatility has continued this week with the S&P officially crossing into correction territory.6 Volatility can test anyone’s patience, and it’s important to be thoughtful not only about the market environment but also about your long-term goals before making any snap judgments. In my opinion, more money is probably lost by investors trying to time a correction or avoid volatility than if they had just remained patient and let the market run its course.
Still, staying the course and remaining patient is easier said than done. While volatility is a normal, natural feature of equity investing, the key to preparing for it is realizing there is no way to eliminate it, but many approaches for dealing with it.
One of the most important financial tools to help ensure that your portfolio is properly allocated to help manage your assets through heightened volatility is knowing your investor profile and risk tolerance.
If you have $500,000 or more to invest, our free Zacks Investment Management Proprietary Investor Profile Questionnaire (IPQ)7 can help you assess your risk tolerance. It takes just a few minutes and there is absolutely no obligation.
Disclosure