It seems like every day we’re hearing more and more about the escalating trade war between the U.S. and China – with threats of U.S. tariffs on Chinese goods being immediately met with counter threats from the Chinese government. As a result, we’re seeing a rising U.S. dollar and a falling Chinese yuan. Capital flows are also moving out of China and into “safe-haven” assets like U.S. Treasuries.
And what is the impact of these events? To start, goods from China are getting more expensive for U.S. consumers. Beyond that, higher import prices will constrain living standards in China, as well as put pressure on import costs, ultimately hindering corporate margins and government spending. All of this points to heightened challenges for both the U.S. and Chinese economies. And when the world’s two largest economies slow down, the global economy does too. This, along with an inverted yield curve, points to a fairly high chance of recession.
Clearly, investors are taking notice of all this uncertainty. When corporate earnings are being negatively impacted by wider global economic trends, investors tend to move their money out of the stocks of those corporations. And when that happens, stock prices fall, which is what we are seeing as the summer of 2019 progresses.
Is this the time to sell?
Equity markets do tend to go through periods of volatility, especially after long periods of strength like the one we’ve seen for the better part of the past decade. While no one wants to see their savings shrink by any amount, the important thing for all investors to remember is that selling during periods of market volatility has never been the best response. In fact, it’s the investors who resist the urge to sell and ride out periods of volatility who have historically seen their holdings perform well. Investors who panic and sell their holdings at – or near – market lows are the ones who end up losing out longer term.
Investors who are uncomfortable experiencing short-term losses in response to market volatility should speak with their investment advisor to review their portfolio asset mix and ensure their holdings reflect their long-term financial goals, as well as their comfort with risk. A simple rebalance of portfolio holdings – for example, a slight percentage shift into income-oriented investments – could help reduce volatility and ease the concerns of more risk-averse investors.
If you are wondering what you should do during this period of heightened financial market volatility, we recommend you speak with your Sun Life Financial advisor today.