Volatility

At Berkeley, Inc. we have been surprised by the muted volatility following the election of Donald Trump. As noted during our semi-annual presentation in January, President Trump’s heated rhetoric during his campaign should have resulted in at least a little stock and bond market turbulence. In the weeks and months following the election numerous articles have been written in the nation’s leading newspapers, typically with the same perplexed curiosity as ours. Where is the usual market reaction to changing economic and political turmoil?

The return to normal market volatility, by chance, began two weeks following our firm’s presentation. As the Wall Street Journal stated today “Shares of banks and technology firms dragged markets sharply lower Friday, punctuating the worst week for major U.S. stock indexes in more than two years.” Yep, volatility has returned with a vengeance.
 
A headline in the Washington Post suggests trade policy is a major contributor: “China slams Trump’s reckless and arrogant tariffs, warns of retaliation.” Oddly, many market watchers and analysts finally seem to highly suspect that Trump’s tendency to act by shooting from the hip would cause confusion and concern throughout the world. All the major stock markets have sharply declined.
 
Will this continue? We’re not sure. Trade wars are normally avoided. It’s a bit like the Cold War mantra of “Mutually Assured Destruction.” It’s been a long time since any of the world leaders have acted without any seeming regard for the consequences. Once someone (in the case President Trump) follows through on a threat, the targeted country must respond in-kind. Anything otherwise would likely result in the leaders being seen as weak and ineffective. This is why foreign policy normally occurs in thoughtful, measured steps.
 
With the exception of a significant war (i.e. North and South Korea), it appears that a trade war is one event that could derail the world’s economic growth. So, we don’t expect to make any changes in your investments. It’s foolhardy to try and predict the future.
 
Please let us know if you have questions.
 
The Berkeley Team