It’s official: Trade wars are bad for stocks.
Since the latest round of trade tensions broke out a couple of weeks ago, markets have headed down, down, down.
Friday’s 163-point advance in the Dow Jones Industrial Average followed eight consecutive days of decline. Had the Dow closed down Friday, it would have been its worst stretch in four decades. The Industrial Select Sector SPDR ETF (XLI) is down around 10% from its late January peak. Leading U.S. exporter Boeing, which nearly doubled last year, has slid almost 10% since June 12th.
Chinese stocks, which would surely feel the brunt of any extended trade war with the U.S.. are off around 20% since late January, another cyclical bear market within Shanghai’s 11-year, “secular” bear.
As I wrote in MarketWatch this week, China has dragged emerging markets ETFs down, too. (GoldenEgg Investing® has never recommended emerging markets, because in the long run they give you lower return than from U.S. stocks, and at higher risk.)
President Donald Trump, who thinks all the trade deals negotiated by previous presidents sold America down the river, has threatened full-fledged trade war, not only with China but also with Mexico, Canada and the European Union.
Trump often talks big but then backs down (his slogan could be “speak loudly and carry a small stick”). Is it for real this time? And what effect could a genuine trade war have on the markets and economy?