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China Trade War Makes Stock Market Unpredictable in September

China Trade War Makes Stock Market Unpredictable in September

Investors all around the world are waiting with bated breath to see the outcome of the ongoing trade war between the United Stated and China, and whether or not you support tariffs on China, one thing is certain: tariff announcements and rumors of trade talks have made the stock market unpredictable over the spring and summer of 2019.  As we edge closer and closer to a scheduled October 15th tariff hike, investors are left to wonder whether trade talks between the U.S. and China, currently believed to be taking place in early October (https://www.cnbc.com/2019/09/24/us-china-trade-talks-will-resume-in-two-weeks.html), will bear any fruit.  In the meantime, it seems consumer confidence is split, with some seeing dollar signs in the future and others concerned that a protracted trade war will have a negative impact on the global economy.

The most recent round of tariffs took effect on September 1st as a 15% tax on part of the $550 billion in Chinese imports not affected by previous tariffs.  This corresponded with drops in the stock market in early September.  A subset of American companies including retailers, food suppliers, farmers, manufacturers, tech companies, and clothing manufacturers were hit particularly hard, although their concerns were mitigated somewhat after President Trump announced he was delaying portions of these tariffs until December 15th.  While September is traditionally considered a bad month for the stock market, the rapid ups and downs seen since the beginning of the trade war seem to indicate that investors are basing their decisions to buy or sell on the success (or failure) of the Trump administration’s efforts to find a middle ground with China.

A Gallup poll conducted in July (https://news.gallup.com/poll/238013/americans-say-china-tariffs-harmful-helpful.aspx) seems to reflect the uncertainty of the American public about the perceived benefit of U.S. tariffs on China, with 45% of those polled believing that tariffs will have a negative impact on the U.S. economy in the long term, compared to 31% who believed tariffs would improve the economy and 19% who believed tariffs wouldn’t have much of an impact.  It’s worth noting that political affiliation played a part in the way respondents answered this poll, with Democrats more likely than Republicans to believe that the long term impact of tariffs would be negative, and vise-versa.

With trade talks currently slated for early October and the October 15th deadline for the next round of tariffs looming, investor confidence will no doubt hinge heavily on the success of these talks and whether or not the scheduled tariffs go into effect on that date.  While younger investors can afford the luxury of gambling on risky stock investments, the type of stock market instability associated with the China trade war does not bode well for those in or near retirement.  An escalating or protracted trade war has the potential to devastate the stock market, causing retirement accounts to lose significant portions of their value.  Of course, the future of the economy is anyone’s guess, but amid this trade war, those on the cusp of retirement would be wise to take their money out of risky securities-based investments and place it in financial vehicles that can protect their principal from the wild fluctuations of the stock market.

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