Trade Wars: Don't Panic, Prepare Trade tensions are here to stay. Even without a full-blown trade war, escalating frictions could weigh on business confidence – and growth. Economic fundamentals are still running strong and underpinning our risk-on view in the short term, but we advocate building increased resilience into portfolios as macro uncertainty rises. Economic tensions between China and the U.S. have shot up, confirmed by our BlackRock Geopolitical Risk Indicator. This has coincided with an out performance of quality stocks, as the chart shows. Investors appear to be heeding risks, trade included. Trade risks are not limited to China. The prospects of a North American Free Trade Agreement (NAFTA) deal have deteriorated. The European Union (EU) and others have retaliated against U.S. steel and aluminum tariffs, while the U.S. has threatened to impose tariffs on cars imported from the EU. [+] Read More

While Last Week Was Very Eventful, Investors Shrugged Off Most of the Developments That Drove Headlines President Trump’s comments at the G7 meeting the previous weekend generated a lot of criticism, but investors mostly ignored any possible implications. Similarly, the U.S./North Korea summit appeared to open the way for further dialogue, but did not move the markets. Likewise, the Federal Reserve’s interest rate increase last week had already been baked into market expectations. Stock prices did decline on Friday in reaction to the U.S. announcing it would impose tariffs on Chinese goods, but equity markets were mostly flat to mixed for the week as a whole. Highlights Investors mostly ignored the U.S./North Korea summit and last week’s Fed meeting. But rising trade risks are weighing on sentiment. U.S. growth is accelerating, as is inflation. This should prompt the Fed to continue increasing rates. We see several possible risks to stocks, but believe equities should continue to outperform bonds over the next year. [+] Read More

Equities Prices Are Likely to Continue Churning, But Should Eventually Move Higher Equity markets struggled to gain clear direction last week. Investors focused on geopolitical issues, particularly U.S./China trade negotiations and the on-again-off-again prospects for a summit with North Korea. Other issues included the sustainability of the U.S. and global economic expansions, rising bond yields, the spike in oil prices and Federal Reserve policy. The S&P 500 Index rose 0.3% for the week. Income-oriented sectors, technology and consumer discretionary led the way, while energy and materials were laggards. Treasury markets also gained ground as the 10-year Treasury yield fell back below 3%. [+] Read More

Taking Stock of Trends, Opportunities, and Risks At first glance, the current environment remains rather favorable for equity investors. Profitability is strong and continues to rise around the world, interest rates are still very low in most countries and valuations don’t yet look excessive, for the most part. But after an exceptionally positive 2017 and a rip-roaring start to 2018, investors have become more nervous, fearing that a breakdown in international trade relations or a monetary policy mistake could bring this economic cycle to an end. Volatility has returned to markets, with investors more inclined to punish perceived disappointments rather than celebrate successes. [+] Read More

An Unusual Earnings Season With many developed market firms having reported first-quarter results, we can say without doubt it’s been an unusual earnings season. Strong beats were met with little investor cheer. The worry: Earnings are close to a peak. Yet we see more room for earnings to climb this year and next, and reaffirm our overweight to U.S. equities. [+] Read More

Reasons for Optimism Slightly Outweigh Reasons for Caution Corporate earnings were in focus for much of last week. Results continued to come in stronger than expected and earnings are on track for their best quarter since 2010. But concerns remain that earnings growth may have peaked in the current cycle. Investors also focused on economic data, including another drop in U.S. unemployment and indications that global growth momentum may be slowing. Amid these crosscurrents, stocks were mixed, with the S&P 500 Index dropping 0.2% for the week. Technology was a standout performer, while telecommunications and healthcare lagged. Upside and Downside Risks May Result in Ongoing Volatility We do not believe that we are close to the end of the current cycle of global economic expansion, but the endgame may develop more quickly than many investors expect. At this point, it appears that upside and downside risks for the economy and financial markets may be pretty well balanced. [+] Read More

As market volatility continues to be a focus point for investors, money managers are keeping a close eye on key market indicators. This week we share the market commentaries presented by Robert C. Doll, CFA, the Senior Portfolio Manager and Chief Equity Strategist at Nuveen Asset Management, and Richard Turnill, the Global Chief Investment Strategist at BlackRock. While their analyses highlight many of the same economic and market factors, their interpretations have distinct flavors. Doll feels that while the “equity markets have been buffeted by a number of credible threats so far in 2018,” it “shouldn’t be enough to actually cause a bear market,” yet, “these risks will need to ease before stocks can regain their footing.” Interestingly, Turnill feels that “the market environment in 2018 has returned to a more ‘normal’ mix of lower returns and higher volatility,” which “reflects rising economic uncertainty and less room for growth to exceed expectations,” but should not “spell the end of the equity bull market, now in its ninth year.” Continue reading for a more detailed analysis of the current market from both Nuveen Asset Management and BlackRock Investment Institute. [+] Read More

Qualified charitable distributions (QCD) are poised to become even more popular under the new tax law. While the Tax Cuts and Jobs Act (TCJA) generally doubled the standard deduction, while eliminating many itemized deductions, financial advisors will want to update their clients on the potential tax-saving benefits of qualified charitable deductions (QCDs) now that they have been made permanent. Remember that a charitable contribution is itself an itemized deduction, so most taxpayers will no longer receive the full deduction value—unless all other itemized deductions exceed the standard deduction amount. In other words, far fewer taxpayers will itemize, thus fewer taxpayers will be able to take advantage of the deduction for charitable giving. [+] Read More

Taking A Look Back at Major Market Milestones of First Quarter 2018 The first quarter of 2018 was anything but a continuation of the market behavior we saw in 2017. After historically low volatility and positive total returns for each of the 12 months in 2017, January continued the trend of higher markets with nearly historic lows in volatility. Then came February. Registering volatility levels below 15 for the month of January, the CBOE Volatility Index (VIX) spiked 116% on February 5, the highest daily move ever recorded. On that same day, the Dow Jones Industrial Average plunged 1,175 points, or -4.6%, its largest single-day point decline in history and the worst day performance-wise since August 2011. The volatility spike was so violent that it even resulted in the shutdown of a widely-traded inverse VIX product. [+] Read More