According to the C Fund, the S&P 500 dropped more than 2 percent recently, making it the worst performing week for the fund of the year thus far. This was after a slight bump, which saved a few percentage points. Otherwise, it would have dropped by as low as 4 percent.
For months, a proposed bilateral trade agreement has been discussed between China and the United States, a negotiation that had a few setbacks this week. Decreased trading and increased tariffs would be the result if a deal between the two countries is not secured soon.
This comes on the heels of a tweet by President Trump, where he said he would increase the tariffs on the $200 billion worth of imports from China to America by 25 percent. This would be up from the previous 10 percent.
This statement concerned investors, leading to market dips the world over, as worries about export tariffs against the United States, supply chain disruption, and a decrease in consumer consumption if prices on goods were to be raised. It also comes after statements by delegates from both China and the U.S. that negotiation had been going along agreeably, with several smaller deals already being put into place.
Trump’s threat to increase tariffs comes after a source claimed that officials from China had backtracked on large swaths of the already agreed upon deal.
That said, there is leverage on both sides of the negotiation, so there’s still time for things to shake out, though tariffs against American goods could have a more disastrous impact for China, as consume less American goods than the other way around. There are other policies that China has that put the United States in a better position legally, including forced transfer of intellectual property.
Adversely, China’s political system does not cater to different parties, and they can easily wait out the next election of the U.S. President before they continue to negotiate if they don’t like the Trump administration’s proposed deal. Presently, 5 percent of the United States debt is owned by China, over $1 trillion, and should talks devolve, they could stop buying said debt, leading to a greater strain on yields from the U.S. Treasury.
But all hope isn’t lost, as before this latest drop, April 2019 marked a record high for the S&P 500 and the C Fund. And the S Fund continues to drop by 25 percent, a trend which has continued since the year prior after a record high for that fund in August of 2018. While showing signs of recovery, the S Fund is still below the threshold it had in August of last year.
Other funds, like the lifecycle funds in the TSP, haven’t had quite a tumultuous journey as a few of the other stocks, as diversification of that fund leads to lower fluctuations.