The Dow Jones Industrial Average had a rough start to 2018, with last month seeing a one percent decline in the C Fund, a two percent drop in the I Fund and a 0.2 percent increase in the S Fund. However, an increase in U.S. interest rates are putting down negative pressure on stock valuations, but it’s the fear investors have on the trade wars that are affecting the TSP performance.
This is why you should diversify your portfolio.
Will There Be Higher Worldwide Tariffs?
For many years, the U.S has had relatively low import tariff rates compared to other parts of the world. With the nation threatening higher tariffs, there are two possible outcomes that could happen:
Other countries could lower their own tariffs, aligning them with the U.S. tariffs, ensuring that U.S. tariffs stay low. This means U.S. products would be able to compete ina global market.
Other countries could resort to retaliatory measures such as raising their tariffs, which would mean high tariffs for all nations, reduced worldwide trade and boost protectionism.
The Trump Administration has already announced it would implement tariffs on an extra $200 billion of Chinese products, and even flirted with the idea of imposing a 25 percent tariff on all European car imports. The current European car tax rate is 2.5 percent with European trucks taxed at 25 percent. The EU taxes the U.S. vehicles at 10 percent.
With countries looking at the second option in response to the U.S.’ moves, it means markets are on shaky ground. Many well-known U.S. companies – Apple, Caterpillar andothers, see a large part of their revenue from countries like China. For them, a trade war is risky.
For smaller companies that don’t have a lot of international exposure, tariffs are unlikely to affect them as much. Thiscould be why the S Fun appears to be doing better than the C Fund.
OPEC Will Boost Oil Production Slightly
Energy stocks have seen a boost thanks to OPEC’s decision to increase the production of oil slightly. This helped to ease investors’ concerns that OPEC would continue to reduce its production, which would have a negative impact on the energy stocks.
OPEC’s decision would help in one of two ways – stabilize the market or decrease the price of oil slightly. This would help consumers and businesses who often face higher prices during the summer months. When oil prices are astronomically high, it causes the economy to slow down and cause a recession. Therefore, a decision to boost oil production output can decrease the potential of this happening.