Trade tensions between the U.S. and China once again took a leading role on Monday (Aug. 5), and as has frequently been the case over the past year, escalating tariff fears spooked the stock market. The S&P 500 fell nearly 3%, and the Dow dropped more than 700 points.
Investors have watched this movie before, but markets haven't become desensitized to the drama. We doubt the suspense will disappear, but the supporting cast of the broader investment story is still fairly healthy, extending this bull market's running time.
Monday was the worst day for stocks in 2019, but we believe the bigger picture is still bright: Heading into last week, the stock market was having its best year since 2013. Consider the following takeaways:
Additionally, Monday's market reaction was stoked by a sharp drop in the value of China's currency (the yuan), under the view that China's policymakers are allowing their currency to drop as a retaliatory response to the new tariffs because a weaker yuan makes Chinese imports cheaper and U.S. exports relatively more expensive.
Trade concerns are just one risk in today's investment landscape – a list that includes Brexit, slower global growth and monetary policy uncertainties. But with the positive side of the ledger still featuring 1) sustained economic expansion, 2) modestly rising corporate profits and 3) still-low interest rates, we think the outlook for longer-term investors remains favorable.
Past performance of the markets is not an indication of what will happen in the future.
Diversification does not ensure a profit or protect against a loss in a declining market.
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