Monday’s Stock Gains Undone… and It’s the Trade War Again

July 4, 2018
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Monday came with the positive news that the stock market started the quarter in the green, with every index posting positive results at the end of the day’s trading. Confidence appeared to be strong as investors brushed off the previous round of rhetoric associated with international trade disputes between the United States and key trading partners.

Tuesday should have gone well, but the final figures tell a different story. The stock market lost the gains that were made, and trade war headlines are dominating the financial news again.

All Indexes Drop as President Trump Hints Towards Auto Tariffs

The current administration has already imposed tariffs on everything from aluminum and steel, to general goods from countries like China. Now the President is warning that autos could be hit with tariffs, which would shift the battleground into an industry that impacts American consumers and businesses directly.

In a recent interview with Fox News, the President said that “You know, the cars are the big one. We can talk steel, we can talk everything. The big thing is cars.”

Auto imports and domestic manufacturing are a huge part of the American economy. What some consumers and even investors don’t understand is that auto tariffs would not just damage foreign car imports. Almost every vehicle made in the United States today uses some parts imported from overseas markets. If the trade disputes reached the lowest possible point, then consumers would feel the full impact at showrooms.

Prices may also increase as American steel and aluminum producers have more incentive to raise prices now that they don’t have to compete with foreign metal imports.

July 4th Trade Market Closure Could Be Impacting Prices

Although trade disputes are dominating headlines, the Independence Day holiday should also add some perspective to Tuesday’s losses. With markets closed today, volatility was always going to be a risk this week. These losses could be recovered at the end of the week, because nothing has fundamentally changed in the trade situation.

What every investor needs to keep in mind is that until something becomes policy, many of the headlines are based on rhetoric. The economy is currently tracking to make a positive 5% GDP increase for the third quarter, so while one-day losses are worrying, they’re not as drastic as some believe.

Markets at the end of Tuesday left the NASDAQ down -0.86%, the S&P 500 down -0.49%, and the Dow Jones Industrial Average down -0.54%.

Trading will open again on Thursday, and by the end of this week we will have a clearer understanding of the opening in this new quarter.

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