Monday – May 6, 2019

Market opens sharply lower after President Trump surprised the world over the weekend that a tariff increase on China is coming Friday. This suggests the talks have been breaking down or perhaps the divide was widening again. China was set to send its trade leaders to the US to seemingly complete a deal this week after Mnuchin and Lighthizer spent much of last week in Beijing. Global Markets sold off big overnight. The Shanghai Composite fell 5.5%. Europe is down roughly 2%. The Market had gone a long way to pricing in some sort of a deal on trade. This creates great uncertainty and increases the risk profile significantly. Stocks are not cheap and in some instances extremely expensive. A wave of selling could continue in size. The Market will be studying developments very closely. Was this a complete reversal and a trade war begins or was this a negotiating tactic that will bring a better deal? In this day and age, with this White House, anything seems possible. But this new complete unknown will send volatility skyrocketing. The world is not a stable place right now. The US is dispatching a carrier strike group to the Middle East in response to Iranian threats. National Security Advisor John Bolton said this was not an act of war but an act of stabilization in the region. Iran won’t see it that way. Neither will Russia. And don’t forget, another missile was tested along the Korean peninsula. Oh, and there’s that Brexit issue still hanging out there too. We wrote on Friday about growing risks and our defensive positioning. It’s because of something just like this. It’s why we have hedges in place. Fasten those seatbelts. And hang on.

Have a great morning,

Mike Frazier

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