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Insights How to Think About Trade Tensions
May 08, 2019
- Tuesday saw equity volatility return with a vengeance, with the VIX equity volatility index rising to an intraday high of 21.84 before ending the day just under 20 (up from levels closer to 13-14 just a few days earlier).
- Short-term investor fears, reflected in lower stocks and bond yields and higher volatility levels, followed suggestions that the U.S. could increase and possibly broaden tariffs on Chinese imports this Friday, with Chinese retaliation likely to follow.
- No one can predict the ins and outs of these negotiations; however, when we go back to first principles, we believe that a deal is ultimately still the most likely outcome — the bigger question is around the path to get there and timing.
- Further out, we believe that renewed equity strength around confirmation of an eventual deal may well provide an opportunity to incrementally reduce equity risk in portfolios.