Recent Stock Market Volatility & China Trade Negotiations

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If you are following the headlines about the U.S. stock market, you have probably noted the media’s reports on the increase in stock market volatility this past month. From August 1 to September 5, the S&P 500 swung more than 1%, in either direction, during 50% of the trading sessions.(1) Contrast this with the period from January 1 to July 31, 2019, during which only 13% of trading sessions increased or decreased more than 1%. 

(Investing in the stock market can be an emotional journey. During times of market volatility, it’s useful to recognize how we may feel. For more emotional insight, click here to read about the four stages of investor emotions.) 

Much of the recent short-term market volatility can be attributed to the ever-evolving trade negotiations with China. Recently, this conflict has had several new developments, but, ultimately, it has continued to escalate with both sides going tit for tat with additional retaliatory tariffs. Volatility has been created as each additional piece of news is interpreted and acted upon by traders.

Initially, China thought that it could potentially wait out the conflict by stalling a trade agreement until after the 2020 U.S. presidential election, after which it might have the opportunity to negotiate with a different administration. However, leading Democratic presidential contenders have started taking a stronger stance against China as well.(2) 

After much back and forth and uncertainty as to the next trade discussions, on Thursday, September 5, the U.S. & China announced that they had agreed to hold the next round of negotiations in October, with consultations for the meeting to occur in mid-September. After the announcement, the Chinese Commerce Ministry issued a statement saying, “Both sides agreed they should work together and take practical actions to create favorable conditions for the negotiations.”(3) Of course, only time will tell if these negotiations will be fruitful, and few analysts are expecting a quick resolution.

We will continue to watch the almost daily developments of these trade negotiations, and of course will continue to monitor your portfolio and make changes as suitable. Note that our process is not that of day-by-day trading, but instead focuses on fundamentals such as where we believe we are in the investment cycle, economic indicators, contrarian opportunities, and most importantly your goals and preferences.

If you would like to read more on the trade negotiations with China click here

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Sources:

(1) https://www.investing.com/indices/us-spx-500-historical-data

(2) https://www.raymondjames.com/commentary-and-insights/economy-policy/2019/08/30/weekly-economic-commentary

(3) https://www.cnbc.com/2019/09/05/china-and-us-agree-to-meet-in-october-for-trade-negotiations-chinese-state-media.html

Definitions: 

S&P 500: Representing approximately 80% of the investable U.S. equity market, the S&P 500 measures changes in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividend reinvested.

 

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