Stock markets volatility this week might be a sign that the long period of stock boom is coming to an end.
President Trump’s Thursday announcement of new tariffs on imports from China took US stocks down to the lowest in six weeks, and almost to the lowest point of the year.
Trump’s measures to limit Chinese influence on American economy weren’t limited by just tariffs on $60bn worth of products. There is a whole bunch of sanctions including restrictions on the acquisitions of American firms by Chinese ones and on technology transfers.
Investors fear that China now will place tariffs on American goods exported into China.
A Chinese foreign ministry spokeswoman said Beijing would “take all legal measures to protect our interest” if the US took “actions that will harm both China and itself”.
Currently, the balance between Chine’s export to the USA and American export to China is tipped in favour of China. The country exports much more to its American partner and consequently benefits more of this trading relationship which was the cause of bitterness in Trump’s administration.
However, trade restrictions will negatively impact the volume of trading and companies in both countries will suffer.
Thursday’s plunge, when the Dow closed more than 700 points down, was not just about the companies most exposed to China, although they definitely performed worst: stock prices of Boeing and Caterpillar, for example, both dropped 5%.
Other shares also dropped including those of banks and tech firms: the tech-packed Nasdaq slid 2.4% and the broad Standard & Poor’s 500 stock index dropped 2.5%.
Facebook has also contributed to the general picture of gloom by losing about 10% of its market capitalisation in the wake of Cambridge Analytica case.
It looks like the bright optimism that marked the start of the year has faded down a bit with the looming trading wars and increasing borrowing costs for companies. The fear is that the negative impact will be widespread.
“Trade tariffs are starting to emerge as a bigger market head wind than originally thought. The strong U.S. and global economic and fiscal policy tail winds are starting to be overtaken by the proposed tariffs, the Fed’s softer-than-expected economic outlook for 2018 and the fallout from the Facebook issue.”
Ivan Feinseth, director of research at Tigress Financial Partners.