It\u2019s doesn\u2019t take a rocket scientist to see what\u2019s going on in the markets these days. Everybody\u2019s worried, it seems, that the stories that used to keep on driving indexes to new records might be coming to an end.<\/p>\n
Consider the FANG stocks, those darlings of the tech world that just kept on giving to investors. Until mid-March, that is. Now they\u2019re taking a hit, led downward by Facebook, which was caught napping on a user-data scandal that just won\u2019t go away. Meanwhile, U.S. President Donald Trump has taken to Twitter to attack Amazon, which of course is completely unrelated to Amazon CEO Jeff Bezos owning the not-exactly-Trump-loving Washington Post newspaper.<\/p>\n
The result is that Facebook is down more than 15 per cent from mid-March. Amazon was down more than 10 per cent as of Monday’s close. And for reasons that may or may not have to do mostly with the fact that they complete the FANG quartet, Netflix and Alphabet (Google, to most of us) have also taken 10-per-cent-plus hits.<\/p>\n
So that\u2019s one story looking like it might be in a dark new chapter. Another might be the tale of revived global growth, which finally had started to play out after developed economies spent nearly a decade \u201crecovering\u201d on central banks\u2019 easy-money life support. The International Monetary Fund revised up its 2018 global growth forecast to 3.9 per cent in January \u2014 up 20 basis points from last year \u2014 and monetary policymakers had started to take steps towards normalization. Bond yields were rising, corporate earnings were strong, and equities were doing just fine.<\/p>\n
But now, like Jason stalking randy teenagers in those Halloween movies, the horrific visage of a trade war is threatening to kill the buzz. First Trump slaps tariffs on imported steel a couple weeks ago, and China responds with its own levies on U.S. goods, and now the U.S. is poised to introduce tariffs on maybe another US$50 billion of Chinese imports, in response to which China is expected to bring in more tariffs against U.S. goods. Broad indexes have taken the brunt of the fear trade: the Dow Jones industrial average plunged nearly three per cent at one point Monday, after China announced its US$3 billion in levies.<\/p>\n
Chaste Canada might not be immune from the trade-war bloodshed. Even though the U.S. exempted Canada and Mexico from the steel tariffs, that\u2019s contingent on a successful completion of NAFTA renegotiations, which Trump (via Twitter, of course) now seems to want to link to (also completely unrelated) immigration issues with Mexico. So investors in the S&P\/TSX composite have been feeling more pain \u2014 like they needed it.<\/p>\n
So, uh, that\u2019s the bad news. There seems to be a lot of it. But is it news, really, or something else? And while it\u2019s unassailably true that the markets are always right, a contrarian (certainly not me) or an opportunist (not me either) might ask whether they might have been going a little too far in their rightness lately.<\/p>\n
The tech selloff looks like a case of running away from smoke instead of fire. As I\u2019ve written before, Facebook\u2019s scandal is hardly evidence of a failing in the company\u2019s business model. And while it might be that some new regulation is going to come of all this, is it likely to be so onerous as to justify a 15-per-cent haircut on Facebook stock?<\/p>\n
As for Amazon, I can\u2019t see any clear path for Trump to do anything about whatever it is he\u2019s complaining about. (Apparently, he believes that having America\u2019s largest e-commerce platform as its biggest customer is somehow costing the U.S. Postal Service, along with American taxpayers, a fortune.) A tax on the Internet (which Treasury Secretary Steve Mnuchin says the administration is considering) would be politically unsalable; the Postal Service isn\u2019t taxpayer-funded, and if it raised rates for Amazon, Amazon could get stuff delivered by somebody else.<\/p>\n
A contrarian might be less contrary about global trade fears, given the bombast coming out of Washington and Beijing. But for now, there just isn\u2019t really much in the way of substance. Those steel tariffs that China retaliated against don\u2019t apply to the biggest exporter to the U.S. (that\u2019s us), and Chinese steel, which already faced punitive levies, comprised a very small piece of the U.S. imports. The US$3 billion in retaliatory Chinese tariffs represent about two per cent of U.S. exports to the country last year. And while Trump\u2019s threatened tariffs on US$50 billion in Chinese goods would be a bigger deal, the target level still amounts to less than 10 per cent of the value of goods China shipped to the States last year.<\/p>\n
Of course, this could all escalate into an all-out trade war, and that would be bad. But we should remember the Trump administration\u2019s history of talking loudly and carrying a small stick on trade \u2014 at least so far. He promised to tear up NAFTA during his campaign; instead, he punted it to process. Given the current U.S. penchant for doling out confrontation and compromise at the same time, we shouldn\u2019t be surprised if the U.S.-China \u201ctrade war\u201d takes a conciliatory turn.<\/p>\n
Has the world really changed that much in a month, or will this correction eventually turn around like the five other ones (on the S&P 500) that have failed to stop this bull market?<\/p>\n
A contrarian might wonder that \u2014 or an opportunist.<\/p>\n","protected":false},"excerpt":{"rendered":"
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