The US administration announced its first trade deal with United Kingdom on Thursday morning. Pres. Trump insinuated that this was the first in many trade deals to come. This might be a good time to look at previous trade deal confrontations and resolutions to see how the markets have reacted in the past. Luckily, we don't have to go back far as we dealt with a similar situation in 2018.

 

During Trump's first administration in 2016, fears of a trade war between the world's two largest economies (U.S. and China) led to a global slowdown that sent the S&P 500 down 4.4% in 2018, with a max drawdown of 19.4% during the year. As you can see from the chart below, while tariff policies negatively impacted the markets in 2018, the markets recovered in 2019 as trade deals were reached. I should also highlight that the market started to recover in anticipation, before the trade deals were officially announced. I would also like to point out that the market started to recover a couple of weeks ago, prior to yesterday’s announcement of the first trade deal since the new tariffs were implemented. Maybe it's just coincidence!

 

 

If you believe that this is the beginning of the end of the tariff wars, the chart below may be of interest. As you can see in the past 100 years, whenever the S&P 500 has declined 15% or more in value, the subsequent 12-month return has averaged 52%. I am not insinuating that we're through with the tariff turmoil. However, if we are... returns have been pretty good, historically speaking. This is why it's difficult to time the market and have too much excess cash on hand.

 

 

I have also attached some commentary from our CIBC Economics team entitled “Time to hedge one’s bets?”.

 

As always, if you have any questions, please feel free to give us a call.

 

Have a great weekend.

 

Milan