Trade seems to be the topic of the week as Axios reports Trump privately mentioning that he may want to leave the WTO, which would upend a 70+ year old institution representing trillions of dollars of trade. Additionally, tariffs on the auto industry could affect millions of U.S. jobs in the auto sector. Read on to get all the details.
Eyeing Auto Tariffs – As the Trump administration considers levying tariffs on European car imports, the European Commission is already weighing a retaliatory response. They have signaled counter-tariffs to the tune of $294B, which represents about 19% of U.S. goods exports in 2017. Tariffs today, that the U.S. has actually implemented, stand at around $85 billion, but adding the European car market to the mix would mark a substantial step-up in the trade war and could affect the 4 million U.S. jobs in the auto sector. BMW, for instance, could respond by reducing its American investment and jobs, given the large number of cars it exports from its South Carolina plant. General Motors also warned this week that a full-scale tariff battle with European automakers could force the company to scale back its business.1
Side Deal with the Saudis? – crude oil prices have been in the spotlight lately, particularly as the Trump administration moves to reinstate stiff sanctions on Iran. Doing so could impact supply, which is why markets were slightly caught off guard when President Trump announced a potential side deal with the Saudis – whereby they would potentially increase output by up to 2 million barrels per day. OPEC had just announced a lesser output increase, which left many market participants wondering which version of the announcement to correct.2
Retail Apocalypse, Continued — Target announced this week their intent to add automatic cash-counting machines to its nearly 2,000 stores starting this summer. Walmart had already made a similar announcement, which means that in many stores there will likely be fewer clerks – until perhaps there are none. The gray machines – known as cash recyclers – count bills and coins quickly, allowing stores to digitally bank their cash. Clerks will likely be assigned other jobs versus losing their jobs outright.3 Meanwhile, at the shopping malls, vacancy rates hit 8.6% vs. 9.4% in the third quarter of 2011. Strip malls and community shopping centers were even worse, at a 10.2% vacancy.4
A Trade Threat That Could Actually be Recessionary – China tariffs and potential European automaker tariffs aside, there is a bigger, more substantial trade threat that we would actually see as recession. According to a report by Axios, President Trump privately talks to White House officials about wanting to leave the WTO, which would upend a 70+ year old institution representing trillions of dollars of trade. Such a move could unravel the global trade order and would almost certainly change our calculus on trade completely. That being said, the move appears for now highly unlikely. While international law says that Trump alone could notify the WTO of the United States’ withdrawal, U.S. law states that withdrawal from the WTO requires an act of Congress. Too many Congressional Republicans are free trade/free market advocates for withdrawal to become a reality, in our view.5
Happy 4th of July! This summer, it is estimated that over 216 million Americans celebrated 4th of July, spending about $6.9 billion in the single day on food and beverage. That’s a lot of beer and hot dogs, but actually does not even meet last year’s record of $7.1 billion, according to the National Retail Federation. Reasons for the decline may include prices at the pump and the fact that the holiday fell on a Wednesday.6
As we close a holiday week, this week sadly gave us more negative headlines than positive ones, from tariffs on the auto industry to whisperings of Trump wanting to leave the WTO. These stories leave many investors with more unanswered questions about where the market is headed than answered. But, while we cannot predict the short term, the right investment strategy can make an enormous difference over the long haul.
To help you learn more about strategies that cater to different investment objectives, we have created our Dean’s List of Investment Strategies.7 Our Dean’s List describes five of our top investment strategies. If you have $500,000 or more to invest and want to learn more about these strategies, click on the link below to see how they could benefit you.
Disclosure
1 CNN Money, July 2, 2018, http://money.cnn.com/2018/07/02/news/economy/car-tariffs-europe-warning/index.html
2 CNBC, June 30, 2018, https://www.cnbc.com/2018/06/30/oil-deal-may-stir-the-pot-in-the-middle-east-and-test-saudi-capacity.html
3 Seeking Alpha, July 2, 2018, https://seekingalpha.com/news/3367319-target-install-cash-counting-machines
4 MarketWatch, July 2, 2018, https://www.marketwatch.com/story/malls-emptier-as-vacancy-rate-hits-6-year-high-2018-07-02
5 Axios, June 29, 2018, https://www.axios.com/trump-threat-withdraw-wto-world-trade-organization-f6ca180e-47d6-42aa-a3a3-f3228e97d715.html
6 National Retail Federation, July 6, 2018, https://nrf.com/resources/consumer-research-and-data/holiday-spending/independence-day
7 ZIM may amend or rescind the “Dean’s List of Investment Strategies” guide for any reason and at ZIM’s discretion.
DISCLOSURE
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.
Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.
This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.
Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.
Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable. Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.
Returns for each strategy and the corresponding Morningstar Universe reflect the annualized returns for the periods indicated. The Morningstar Universes used for comparative analysis are constructed by Morningstar (median performance) and data is provided to Zacks by Zephyr Style Advisor. The percentile ranking for each Zacks Strategy is based on the gross comparison for Zacks Strategies vs. the indicated universe rounded up to the nearest whole percentile. Other managers included in universe by Morningstar may exhibit style drift when compared to Zacks Investment Management portfolio. Neither Zacks Investment Management nor Zacks Investment Research has any affiliation with Morningstar. Neither Zacks Investment Management nor Zacks Investment Research had any influence of the process Morningstar used to determine this ranking.
These rankings may not be representative of any one client’s experience. In addition, they are not indicative of future performance