Peek of the Week
Market Commentary
June 3, 2019
The Markets
Tariff trouble.
Just two weeks
ago, the U.S. government lifted tariffs on Mexico and Canada. So, it was a
surprise last week when President Trump tweeted the United States would impose
an escalating tariff on all goods imported from Mexico until the flow of
migrants to the United States’ southern border stops.
The pending
tariffs have potential to hurt both American and Mexican economies, reported The Economist. “Two-thirds of American
imports from Mexico are between related parties, where one partner owns at
least 10 percent of the other, so any tariff will cause problems along tightly
integrated supply chains.”
In 2018, Mexico
was the second largest supplier of imported goods to the United States. It
provided 13.6 percent of U.S. imports. In addition, Mexico was the second
largest importer of U.S. goods. The country took in 15.9 percent of overall
U.S. exports, including machinery, electrical machinery, mineral fuels,
vehicles, and plastics, according to the Office
of the United States Trade Representative.
The new tariffs (a.k.a.
import taxes) may increase costs for ordinary Americans. Last week, Liberty Street Economics explained the
costs associated with Chinese tariffs:
“U.S. purchasers of imports from China must now pay the import tax
in addition to the base price. Thus, if a firm (or consumer) is importing goods
for $100 a unit from China, a 10 percent tariff will cause the domestic price
to rise to $110 per unit…it is not a true cost for the U.S. economy because the
money is simply transferred from buyers of imports to government coffers and
thus could, in principle, be rebated.”
A different type
of cost occurs when companies find new suppliers. For example, a company that chooses
not to pay tariffs can buy goods elsewhere. They might choose to pay a
Vietnamese firm $109 for a product rather than pay a Chinese firm $110 ($100 plus
a 10 percent tariff). In this situation, the consumer pays a higher price and
there is no tariff revenue that could be rebated. This is called a deadweight
loss.
In total, Liberty
Street Economics estimated the cost of 2018 tariffs on Chinese goods at $419
a year for the typical household ($132 in deadweight loss). The tariffs imposed
in 2019 are expected to cost $831
a year ($620 in deadweight loss).
Liberty Street Economics did not estimate the potential consumer
cost of new tariffs on Mexico.
Major U.S. stock
indices finished lower last week. Yields on U.S. Treasuries moved lower, too,
suggesting investors may have been seeking safe havens.
Data as of
5/31/19
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard
& Poor's 500 (Domestic Stocks)
|
-2.6%
|
9.8%
|
1.7%
|
9.5%
|
7.4%
|
11.3%
|
|
Dow
Jones Global ex-U.S.
|
-0.9
|
5.6
|
-9.1
|
4.1
|
-0.8
|
3.4
|
|
10-year
Treasury Note (Yield Only)
|
2.1
|
NA
|
2.8
|
1.8
|
2.5
|
3.7
|
|
Gold
(per ounce)
|
1.0
|
1.1
|
-0.8
|
2.2
|
0.8
|
2.8
|
|
Bloomberg Commodity Index
|
-1.3
|
1.3
|
-14.4
|
-3.1
|
-10.3
|
-5.0
|
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg
Commodity Index returns exclude reinvested dividends (gold does not pay a
dividend) and the three-, five-, and 10-year returns are annualized; and the
10-year Treasury Note is simply the yield at the close of the day on each of
the historical time periods.
Sources: Yahoo! Finance, MarketWatch, djindexes.com,
London Bullion Market Association.
Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. N/A means not
applicable.
Let’s hear it for the Dogs. Some
people love cats. Some people love dogs. Some people believe your preference
offers insight to your personality. You have probably heard variations on this
idea. WebMD offered the example that
cat owners are open, curious, creative thinkers, while dog owners are outgoing,
enthusiastic, self-disciplined planners.
Recently, a bit of data
emerged that may please dog owners in Britain. It seems canines in the United
Kingdom are outstanding personal trainers. A University of Liverpool study, published
in April in Scientific Reports, found:
“The
odds of [dog owners] meeting current physical activity guidelines of 150 minutes
per week were four times greater than for [people who don’t own dogs]. Children
with dogs reported more minutes of walking and free-time (unstructured)
activity. Dog ownership is associated with more recreational walking and
considerably greater odds of meeting [physical activity] guidelines…It is recommended
that adults undertake at least 150 minutes of moderate-to-vigorous intensity
physical (MVPA) activity per week.”
British dogs are better at
ensuring their owners get enough exercise than American and Australian dogs. In
both the United States and Australia, a significant number of dog owners
reported their dogs live outside and exercise on their own.
Few cats are willing be
leashed and taken for walks, so cat ownership is less likely to help owners
meet physical activity goals. Regardless, cat owners may realize some health
benefits. A University of Minnesota study found cat owners were 30 percent less
likely to die from heart attacks or strokes than non-cat owners. It remains
unclear whether cats help lower stress and anxiety or cat owners tend to have
low-stress personalities.
Weekly Focus – Think About It
“Owners of dogs will have
noticed that, if you provide them with food and water and shelter and
affection, they will think you are god. Whereas owners of cats are compelled to
realize that, if you provide them with food and water and shelter and
affection, they draw the conclusion that they are gods.”
--Christopher Hitchens, Author and columnist
Best regards,
Leif M. Hagen
Leif M. Hagen, CLU, ChFC
LPL Financial Advisor
Leif M. Hagen, CLU, ChFC
LPL Financial Advisor
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Government bonds and Treasury Bills are guaranteed by the U.S. government as to
the timely payment of principal and interest and, if held to maturity, offer a
fixed rate of return and fixed principal value.
However, the value of fund shares is not guaranteed and will fluctuate.
*
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All indexes referenced are unmanaged. Unmanaged index returns do not reflect
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performance of any investment.
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The Dow Jones Global ex-U.S. Index covers approximately 95% of the market
capitalization of the 45 developed and emerging countries included in the
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investors use the 10-year Treasury Note as a benchmark for the long-term bond
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Gold represents the afternoon gold price as reported by the London Bullion
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benchmark for the commodity futures market. The Index is composed of futures
contracts on 19 physical commodities and was launched on July 14, 1998.
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index representing 30 stock of companies maintained and reviewed by the editors
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Opinions expressed are subject to change without notice and are not intended as
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guarantee that strategies promoted will be successful.
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Sources:
https://www.economist.com/finance-and-economics/2019/05/31/donald-trump-vows-to-use-tariffs-to-punish-mexico-for-migrants (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/06-03-19_TheEconomist-Donald_Trump_Vows_to_Use_Tariffs_to_Punish_Mexico_for+Migrants-Footnote_3.pdf)
https://www.barrons.com/articles/dow-jones-industrial-average-drops-for-sixth-straight-week-on-tariff-tumult-51559351582?mod=hp_DAY_4 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/06-03-19_Barrons-Dow_Drops_for_Sixth_Week_Because_Tariffs_Arent_Just_for_China_Anymore-Footnote_6.pdf)
