1330 Orange Ave., Ste 302
Coronado, CA 92118
p: 619-319-0520
f: 855-691-0427
Read financial tips and market updates in our weekly newsletter
Copyright © 2002 – 2023 Orion Capital Management LLC • Coronado, CA
Disclosure: Orion Capital Management LLC (“Orion”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC). The firm offers advisory services in the State of California and in other jurisdictions where registered or exempted. Registration does not imply a certain level of skill or training. The information on Orion’s website or in its distributed commentary shall not be directly or indirectly interpreted as a solicitation of investment advisory services to persons or entities of another jurisdiction unless otherwise permitted by statute. Orion’s individualized responses to consumers in a particular state in the rendering of personalized investment advice for compensation shall not be made without the firm first complying with jurisdiction requirements or pursuant to an applicable state exemption.
The information on Orion’s website or in its distributed commentary is not investment, tax, accounting or legal advice. Orion is not a tax advisor. For tax advice individuals should consult their CPA. This information is also not an offer or a solicitation of an offer to buy or sell any security, or to be construed as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon in the making of investment decisions. All content on this site is for informational purposes only, and nothing herein should be construed as an investment recommendation. Opinions expressed herein are solely those of Orion, unless otherwise specifically cited. Material presented is believed to be from reliable sources, but no representations are made by our firm as to other parties’ informational accuracy or completeness. All information or ideas described on Orion’s website or in its distributed commentary should be discussed in detail with an investor’s personal financial advisors and legal counsel prior to implementation.
Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested.
The information on Orion’s website or in its distributed commentary is provided “AS IS” and without warranties of any kind, either express or implied. To the fullest extent permissible pursuant to applicable laws, Orion Capital Management LLC disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose.
Testimonials or reviews on Orion’s website are from current clients. Orion does not compensate for reviews or testimonials and has no material conflicts with clients offering reviews.
Orion does not warrant that the information on Orion’s website or in its distributed commentary will be free from error. Your use of this information is at your sole risk. Under no circumstances shall Orion be liable for any direct, indirect, special or consequential damages that result from the use of, or the inability to use, the information provided on this site, even if Orion or an Orion authorized representative has been advised of the possibility of such damages. Information contained on this site should not be considered a solicitation to buy or an offer to sell any security, or a recommendation to buy or sell any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.
Schedule a quick introductory call with you and see if we would be a good fit for you.
Investors Tiring of Trade War
Trade Punches Hit Global Stocks
Just three weeks ago, U.S. stocks were hitting all-time highs. Since then, however, they have taken a turn lower as trade relations with China have turned combative. Even a more accommodative Federal Reserve, which lowered the Fed Funds interest rate by 0.25% on July 31, has not been able to mollify investor sentiment against the growing rancor in the U.S.-China trade war. Now, both sides seem to have lost the desire to reach an accommodation in the near term and are instead seeking new ways to punish each other. As stocks have dropped, bonds have surged as investors scurry to safe havens. The ten-year U.S. Treasury note yield has dropped from 2.01% on July 31 to 1.74% today, a massive move in such a short time.
Equity investors seem to be losing patience with our approach to trade negotiations and are increasingly asking: Has punishing China become more important than nurturing and protecting our own economy and markets?
More Tariffs on the Way . . .
Last Thursday, the administration announced an additional round of 10% tariffs, to begin on September 1, on the remaining $300 billion worth of Chinese imports that are not yet subject to any tariffs. Tariffs are blunt instruments that can have wide-ranging and unpredictable knock-on effects. They usually work to the detriment of both of the countries involved. To see why, it is important to understand how tariffs work. The Chinese government and Chinese companies do not pay these tariffs directly. Instead, tariffs are paid by U.S. registered importers of Chinese-made goods to U.S. Customs and Border Protection. For example, if a U.S. company imports a shipping container full of sneakers from China, the U.S. company—not the Chinese exporter—pays the tariff levied on those goods to U.S. Customs and Border Protection. The U.S. company will then try to defray the impact of the tariff on its profits by either raising the prices it charges U.S. consumers, accepting a lower profit margin by not raising prices, and/or negotiating a lower price from its Chinese supplier so that it too can share in some of the pain. Over a longer time-frame, the tariffs will encourage U.S. companies to seek out non-Chinese suppliers and they will throw a wet blanket over U.S. consumer spending as households face higher prices for a wide range of goods. To be sure, tariffs make doing business with China more costly and less attractive, but there are no checks being sent to the U.S. Treasury Department from Chinese companies or the Chinese government.
Domestic U.S. Economy Still Relatively Strong
Unlike 2018, which was a very strong year for corporate earnings growth, 2019 is likely to produce only a small amount of growth in corporate earnings. While 2018 had the tailwind of lower corporate taxes, those numbers are now being lapped. At the moment, consumer confidence remains quite high and the employment numbers are strong. With damage from trade tensions beginning to pile up, however, companies are putting decisions and plans on hold. The commentary from managements during second quarter earnings calls has been dour and foggy as companies confront a fluid and unfamiliar trade landscape. Companies who source goods and materials from China and those that have supply chains that are based in or go through China are facing growing uncertainty.
Trade Clash Reflects a Broader Competition
The trade dispute is now the most visible sign of competition between the U.S. and China, but it is merely part of a broader rivalry growing between them. Any trade deal is not likely to forestall greater competition between the two countries in the military, technology or political realms in the years ahead. China’s rise to become a global superpower over the last couple of decades means that the U.S. and China will find themselves increasingly stepping on each other’s toes in a growing number of ways and friction between the two is likely for the foreseeable future.
Share This!
Join Our list!
Join our email newsletter list to receive more market updates and financial articles like this one.
The Fed and Jackson Hole
Fed to Present Update at Jackson Hole on Friday In the year since Federal Reserve Chairman Jerome Powell’s last speech
Soft Landing Back in Play
Soft Landing Hopes Rising A “soft landing,” a scenario in which the Federal Reserve tames inflation through interest rate hikes
Markets Calm Amid Crosscurrents
Both stock and bond markets seem to be taking today’s many conflicting financial and political cross currents in stride, with
Peter Thoms, CFA, MBA