In stark contrast to last year, when nothing seemed to phase the stock or bond market, this year is the year of volatility. So far this year (as of 3/27/2018), the S&P 500 has already had 22 days where it moved 1% or more. Compare this to just eight trading days all of last year. Interest rates, inflation, and unemployment have all contributed to the gyrations. Most recently, though, it’s been tariffs that are rocking the boat. So, I thought we’d take a look at what’s going on.

A tariff is a tax imposed on imported goods and services*. Pretty simple. They are generally used to protect a certain industry from foreign competition. Charging a tax on imports and not on the same goods produced domestically should give the domestic company an advantage. However, it’s not quite that simple. If the domestic producer is a higher cost producer than the foreign producer, then a tariff might increase the price of the good to the consumer. While good for the producer, this is obviously not good for the end user. This could essentially turn into a tax on the consumer.

Also, in a global economy such as ours, we export goods to other countries. And if we put tariffs on certain imports, other countries may do the same to our exports. This could hurt our companies that sell their goods abroad.  Which could lead us to the worst case scenario: a trade war. This is when countries try to significantly damage trade with each other by using extensive tariffs and quotas.

And this is the great fear in today’s market. If we impose tariffs on imports, how will our trading partners react? Who needs the other more: the exporter (for sales) or the importer (for cheaper products)? How would tariffs affect the US consumer (in 2016, household final consumption expenditures made up 68.8% of our GDP^). Some have argued that the increased costs due to the tariffs imposed by the Trump administration could offset any benefit from the enormous tax act that was just passed. A trade war is not good for anyone, and would definitely put a halt to growth.

Free trade is incredibly important in our global economy. And yes, it must be fair trade as well. However, I’m not sure putting tariffs on steel and aluminum will do much to level the playing field. And, broad, sweeping tariffs are usually not a good thing. It will be very important to see how the negotiations go on the protection of intellectual property (IP). Specifically with China (it is widely believed that these tariffs are just a precursor to talks on IP).

The uncertainty that is currently faced by our economy and the stock markets is definitely heightened from the last few years. And this has increased the volatility. Where will interest rates end up? What is the long term inflation rate?  Is there wage inflation or not? Now we have the added uncertainty of a potential trade war. Or, at least some restrictions on free trade. This will definitely affect corporate earnings. But, by how much is the question.

 

 

 

*https://www.investopedia.com/terms/t/tariff.asp

^https://data.worldbank.org/indicator/NE.CON.PETC.ZS

 

*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. Verity Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.

Gavin Chinn, CFS* Financial Advisor

Check the background of this investment professional on FINRA’s BrokerCheck.

An Investment Advisor registered through CUSO Financial Services, L.P., Gavin has 22 years of experience as an advisor in the Puget Sound area.

“I believe every client is unique and deserving of a personalized financial plan that will help them reach their individual financial goals. Before I make any recommendations, I like to get to know my clients. By asking the right questions, and developing an honest, trusting relationship I can really get a sense of what’s going to work best for them.”

Gavin graduated from the University of Washington with a BA in Business Administration and started his financial career with US Bank in the Investment Department. Prior to joining Verity in 2006, he spent eight years with Piper Jaffray.

So what is Gavin’s vision for his dream retirement?

“My dream retirement would be absolutely worry free: financially, emotionally, and in every aspect of life. My finances would be in order so expenses for travel, luxuries, and gifts for the kids, grandkids, and great-grandkids would be taken care of. My kids would be financially sound, so I would be confident in their prosperity. This would give me the freedom to travel and play and do whatever it is I want to do.”

When Gavin’s not working, he enjoys spending time with friends and family, watching Husky football, and taking weekend trips around the Northwest.

Gavin is registered to transact securities business in the states of WA, OR, CA, AZ, FL, HI, ID, IL, MN, NM, NY and VA.

*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. Verity Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.

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