On the Radar is a biweekly publication providing quick and concise answers to the topical investment and economic questions that are on investors' minds.
New questions in this issue:
What caused the current sell-off in the market?
The market appears to have been caught off guard by the escalation and severity of trade tensions between the U.S. and China over the past week. The Trump administration's surprise announcement last week of a 10% tariff on $325 billion in Chinese goods was quickly met this week by China's suspension of U.S. agricultural purchases and the apparent decision by authorities to stop supporting the yuan. This in turn led to an announcement by the Treasury Department that it would designate China as a currency "manipulator".
What is the impact of the sell-off on the U.S.? What about the rest of the world?
Trade tensions have been running for over a year now, and uncertainty surrounding the issue is weighing on overall global growth and corporate profits. The IMF is now forecasting the global GDP will slow in 2019 to the weakest rate in a decade — before picking up modestly in 2020. However, the projected pick-up in global growth next year is precarious, relying on progress in resolving the U.S.-China trade differences, among other policy issues.
What are the risks?
We are in a period of high political uncertainty both at home and abroad. From continuing trade tensions to Brexit to the path of future Fed rate hikes, the list of risks is not short and remains the biggest threat to the global economic outlook.
Are we making any changes to our portfolios?
No, there is no change to the Late-Cycle Playbook. We don't think the bull market is finished just yet, but investors should brace themselves for lower market returns, more volatility and bigger tail risks.
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