Volatility declined in the second quarter of 2018 after spiking the previous quarter. U.S. stocks managed a respectable gain over the past three months, on average, bringing most U.S. indices back to positive for the year. Bonds and foreign stocks generally fell, putting most of those benchmarks in the red.
Concerns surrounding global trade, which contributed to last quarter’s heightened volatility, seem to be abating. However, those concerns may resurface at some point, especially if tariffs start to significantly impact corporate earnings.
Some companies are already feeling the pinch, reporting shrinking profit margins due to higher material costs or declining sales as a result of higher prices. The tax cuts passed at the end of last year may allow companies to absorb the impact of tariffs in the short term, but it remains to be seen how this plays out in the long term.
Most market strategists believe that the tariffs are part of a broader plan to bring certain countries to the table and negotiate new trade agreements. In that scenario the tariffs would turn out to be a temporary measure with minimal impact on the economy. Still, there is the possibility that the administration, and the President in particular, see tariffs as a tool to more permanently shift trade imbalances.
Tariffs are just one more factor in a cocktail that could cool the economy, along with higher interest rates, growing government deficits, and a tight labor market. For now, the markets seem to be taking it all in stride.
The information above represents the opinion of financial advisors Travis Rus, Michael Kernan, and Chris Winther, and is not necessarily that of RJFS or Raymond James. It is not a complete summary of all available data necessary for making an investment decision, and does not constitute a recommendation. Nor is it a complete description of the securities, markets, or developments referred to herein. Opinions are subject to change without notice. Information has been obtained from sources considered reliable, but we cannot guarantee that it is accurate or complete. Past performance does not guarantee future results. Investing involves risk and you may incur a profit or loss.
