[Chart] Tariffs Were A Joke The Whole Time

Shortsighted Wall Street strikes again.

Since this bull market began 9 years ago, the most reliable investment strategy has been to simply buy the dips.

That’s because investors’ attention spans have continually decreased as the bull market has raged on.

The market is down big one day on negative news and back higher the next when the market deems the news to be overblown. Which leads to profitable times ahead for investors paying attention to what is really important…

Forget about tax cuts, says today’s market. That’s old news for this generation of investors.

Tech stocks and tariffs are the new hot topics in the markets. And according to mainstream media outlets, a full-blown trade war was just on the horizon, which was reason enough for the Dow to sink 8.5% since Trump first announced them late last month.

But like clockwork, a new report surfaced of Trump’s administration working cooperatively with trade partners in order to level the playing fields.

(Shocking — the longtime businessman is actually negotiating better deals instead of starting a trade war…)

This led to Monday’s 670 point rally in the Dow.

This kind of news is money to our ears as long-term investors. Instead of running for the hills at the first sign of volatility, we’ve been diving deep into the fundamentals and recommending the dips.

That’s because the fundamentals have consistently shown strong corporate earnings which continue to be the most important factor that should drive stocks higher.

Just take a look at this chart by LPL Financial that puts the situation into perspective.

Fiscal Policy chart

According to the accompanying report, “The announced tariffs cover less than 3% of all U.S. goods imports. So based on announced actions, the impact on the U.S. economy will be minimal. Furthermore, damage to China’s economy is likely to be minimal as well, with tariffs affecting about 10% of China’s exports to the United States, and much of this trade is likely to continue despite the tariffs because alternatives are limited. Capital Economics estimates just a 0.1% impact on Chinese gross domestic product (GDP) from the U.S. tariffs.”1

To quote former Agora contributor David Stockman, that’s quite the nothingburger…

The real market-mover is still the tax cuts that got signed into law three months ago.

Together, tax cuts and repatriation are expected to boost U.S. GDP by $700 billion this year.

This will be evident in just two weeks when what could be the most profitable earnings season ever kicks off. That’s because 2018 Q1 will be the first time the impacts of tax cuts will be visible in company financial reports — no projections this time.

In addition, further insights on how companies will be using their repatriated funds will also be disclosed. Look for news on increased buybacks, dividends and M&A activity.

So for now, let’s stay the course and continue investing in solid companies that continue to grow earnings while paying attractive dividends along the way. And if anything changes, you’ll be the first to know.

Here’s to keeping your edge,

Davis Ruzicka

Davis Ruzicka
Managing editor, The Daily Edge

1 Putting Trade Policy Risk in Perspective, LPL Financial Research

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Davis Ruzicka

Davis Ruzicka is the Managing Editor of The Daily Edge. Davis is an experienced value investor with a degree in Finance from The University of Maryland. Today, Davis is pursuing his Chartered Financial Analyst (CFA) designation in his spare time while continuing to learn from seasoned investors Zach Scheidt and Alan Knuckman.

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