Answering Our Advisors’ Biggest Questions of Focus 2018

We had the pleasure of joining just over 3,500 LPL advisors at our Focus 2018 national conference in Boston last week. The conference is an excellent opportunity for us in the LPL Research department to spend time with our advisors, and for our advisors to ask us questions about the markets.

Among the most frequently asked questions from Focus 2018 was, “Will we have a full-blown trade war?” It is no surprise that this question was popular among advisors, as trade headlines have dominated the news. Over the past few weeks, the U.S. and China have lobbed threats of steep, sizable tariffs at each other.

We may see further escalation of trade tensions and some of the possible retaliatory actions from China, such as boycotts of U.S. products sold in China or disruptive regulatory hurdles that make it difficult for U.S. companies to operate, are unsettling. Supply chains could be significantly disrupted, driving up costs and causing production delays for manufacturers.

That said, the U.S. and China have a lot to lose (including U.S. midterm elections) to escalate the dispute into a full-blown trade war. We are comforted by the fact that the dollar amount of proposed tariffs—including China’s retaliation—is still far less than the amount of fiscal stimulus being pumped into the U.S. economy this year, providing some cushion should tensions escalate.

“Perspective is important when considering trade risks,” according to LPL Research Chief Investment Strategist John Lynch, “We think the benefits of fiscal policy will outweigh the negative implications of tariffs, although noise from tariffs could inject periodic volatility into markets.”

The reaction of the U.S. stock market to more tough words recently (from both sides) and higher tariffs is also reassuring. The S&P 500 Index stands just 0.8% from its all-time closing high on January 26 after gaining for five straight weeks. We will continue to monitor trade developments closely.

For more FAQs from Focus, check out this week’s Weekly Market Commentary.

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*Please note: The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90.

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