Trade War Could Have Cost Your Portfolio 6%

December 10, 2018
931 Views

The trade war has had a major influence on stock markets this year, but just how much value has been lost from ongoing tensions between the United States and its largest trade partners? If you asked the analysts from Bank of America Merrill Lynch, they’d tell you the figure is close to 6%. This is a significant loss and its one that many Americans will question in relation to current foreign policy.

Latest Estimates are Pinned to the S&P 500 Index

Analysts from Bank of America Merrill Lynch used the Standard & Poor’s 500 index to gauge the losses for the year so far. If you invested primarily in this index and had stock value of around $1 million at the beginning of this year, then you would be down by $60,000 today.

President Trump took to Twitter in March to tell the world that trade wars are “good, and easy to win.” His comments don’t resonate with investors today.

An ongoing battle of tariffs and rising tensions with China have led to strained international relations. Even worse for Americans is the fact that the trade deficit has only increased. October figures were some of the worst on record, and this year is heading towards the worst trade deficit in ten years.

Merrill Lynch Used Several Factors to Measure a 6% Loss

6% might seem like an overly harsh estimate if you’ve been watching the stock markets. The S&P 500 is currently tracking at -1.52% for the year to date. However, strong intra-day losses have been experienced at different points of the year. Analysts used days where the market changed by at least +/- 0.5% to calculate their result.

The bank also considered other factors like rate hikes, tax cuts, and wage increases.

Trade War Not Likely to Impact Economic Growth

Economic growth is mostly protected from ongoing trade disputes. Some industries have been devastated, such as the soybean industry, but there are others that are unaffected. Consumers are in a strong position because they have more cash thanks to tax cuts and wage increases. GDP growth is expected to continue.

Most losses related to the trade war have been based purely on investor fears. While President Trump is quick and frequent to criticize the Federal Reserve for its impact on stock market slides, many investors still consider trade tensions and political rhetoric to be the biggest stock market threat.

Some analysts have predicted a year end rally for U.S. stocks. With just three weeks remaining in the year, there would need to be a serious turnaround in investor sentiment, and some overwhelmingly positive news on the trade front.

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