Recently we asked five influential advisors the same two questions: What about today's market concerns you, and what are your expectations for the rest of 2018? All five had the same answer: The prospect of a trade war between the United States and China.
Yet each advisor gave a different reason for their concerns—and some aren't letting their worries about U.S.-China trade dampen their outlook for the rest of 2018.
Their answers (lightly edited for space and clarity) are below:
Chairman & Chief Investment Officer, Cumberland Advisors
I am most concerned about trade tariffs, protectionist quotas and barriers to international commerce. Tit-for-tat trade exchanges have led to very bad outcomes, if we examine history. And we’re picking a fight with the second-largest economy in the world, China—soon to be the largest, within an estimated five to seven years.
One can say this is the president's "style." Well, I don't like his style; I don't like governance by tweet. However, the results may end up being OK. After all, he threatened dismemberment of NAFTA, and he's backed away from that.
Clearly, some people are saying to him that Canada and Mexico are our largest trading partners, and that while you can bluster, the fact is we want to make a deal, not kill it. So maybe that's going to work with China, too. Maybe not. We're going to find out.
Trump is playing out a dangerous narrative. His behavior doesn't lend itself to achieving the confidence of a market agent. He picks a playground-bully fight with Joe Biden; he tweets factual inaccuracies. He doesn't like an editorial in the Washington Post, so he picks a fight with Amazon. These are behaviors that show childlike decision-making. They do not inspire confidence.
I'm bullish. Now, you might say to me, "How can you be an optimist after what you just said?" Because we’re in a surge of earnings growth. It's not just because of taxes, but because we have a huge transition from loose monetary and tight fiscal policy to loose fiscal policy and tightening monetary policy. That transition has been proven by a great investor—George Soros—to be the healthiest one, notwithstanding the bumps along the way.
We're making that reversal of policy, and we're doing it with additions of tax incentives and front-loaded fiscal stimulus over the next two or three years. We're not going to have a recession.
So I'm fully invested today. My biggest overweight is in the banks. The PowerShares KBW Bank Portfolio (KBWB) and the SPDR S&P Regional Banking ETF (KRE) are two great ETFs. I believe the financial sector is recovering after years of punishment, and has a very long accelerator to earnings ahead of it.
Principal & Chief Investment Officer, ThirtyNorth Investments
We have had a few calls about the Fed tightening and rising interest rates, to headline risk over North Korea, to trade wars. It runs the gamut.
Any time there's volatility, though, I'm concerned that clients might make rash, emotional decisions that would take them off track of their financial plan.
There's always going to be volatility in the market. There will always be another downturn, but keeping investors on track, that's really the main job of an advisor in these markets.
I think the extremely low volatility we saw in 2017 is done. What we've seen in the past few months, that's more normal. I expect similar levels of volatility ahead.
The Federal Reserve is tightening, and that generally works against the stock market. But at the same time, companies are still reporting strong earnings. Economic numbers look really strong. So, really, I would not be surprised to see the market close down for the year, or have another nice return year. Anything could happen.