When you’ve been a professional investor for as long as I have, you know it’s important to recognize what the market thinks—even if it’s wrong in the long run.
And right now, the market is biting its nails again about the trade war.
President Trump blasted China on Tuesday, saying it continues to “rip off” America. He’s upset because China is unwilling to buy U.S. agricultural products.
The president’s tweets came right before his trade delegation arrived in Shanghai for a new round of trade talks. And the market is on edge.
But this isn’t the first time I’ve seen the market fall on trade war fears.
Back in the second half of 2015, the Chinese yuan dropped 10% against the dollar. Politicians accused China of manipulating its currency—and even said we should sanction the country.
Fears rippled through the market about a slowdown in trade. Despite a healthy economy at the time, the market tanked 15%… recovered… and then tanked 15% again.
But the trade war never materialized, and the market took off.
So today, I’ll show you why you should ignore the worrywarts trying to scare you out of the market again…
Free Trade Is Good—Except…
In principle, free trade is a good thing. Some places are just better at producing some things than others.
You wouldn’t try growing pineapples in Canada’s frozen grounds… Just like you wouldn’t try growing maple trees in the heat of Mexico. It wouldn’t work.
But when trade is unfair, it’s not such a good thing.
Let me explain…
China puts tariffs on many U.S. products. Take cars, for instance. Any American car going to China gets hit with a 25% tariff. So American carmakers are at a huge disadvantage compared to Chinese ones in the market there.
In fact, I’ve read that a Jeep Wrangler—which retails for about $40,000 in America—costs around $71,000 in China. That difference is mostly due to tariffs.
And any U.S. companies building plants in China are required to create joint ventures with local companies. So these American firms must share their latest technologies with local partners—which then use them for their own profits.
These are just two of the unfair trading practices coming out of Beijing.
Now, I believe in treating people well. And I do that. But if someone strikes me in the face every time… eventually, I’m going to strike back.
That’s what America is doing right now. China has smacked America in the face over and over again on trade deals. So we’re fighting back.
President Trump is absolutely correct to say, “No more!”
He’s simply trying to even the playing field. It’s something we should’ve done years ago. But we’ve had weak leadership that was scared to fight back.
Look, our politicians and trade representatives have gotten us into terrible trade deals. And our international companies have been fighting with their hands tied behind their backs.
It’s no wonder our trade deficit is exploding.
But I’ll let you in on a little secret: None of this matters.
I’m seeing investors drive themselves crazy trying to figure out what every headline means for the market. And I want you to understand that most things in the market are unknowable.
So instead, I focus on underlying trends rather than day-to-day headline nonsense.
As long as the overall price trend is up, I stay in stocks and ignore the news. (I recently explained my trend approach. And you can read it right here.)
We’ve Seen This Movie Before
When trade tensions boiled over in April, I told you:
All you should do when looking at the markets is look at the big picture. And the big picture is that President Trump’s tax cuts have spurred the economy. We’re seeing employment, wages, and profits rise. All of these are incredibly bullish for stocks.
At the time, the S&P 500 was trading above 2,800. Since then, it’s broken out to a new all-time high of as much as 3,027.
But that move didn’t happen in a straight line. Along the way, we hit a low of 2,730 before the uptrend kicked in again.
This type of volatility is normal. And the best way to handle it is to do nothing at all. Go and enjoy your summer. Forget the trade war.
There will always be something going on in the market to fret about. But who cares? It won’t mean a thing if the market reaches a new high again in three months.
Unless you’re a day trader, none of this daily volatility should bother you.
I still believe a trade deal will get worked out at some point. So don’t get sidetracked by the noise. Just focus on the big picture… and understand we’re in a long-term uptrend in stocks.
Let the Game Come to You!
Editor, Palm Beach Daily