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Investment Commentary

Trade vs. Trump

By Brian Andrew | Johnson Financial Group • October 30, 2019

3 minute read time

In recent events in Madison and the Fox Valley, Johnson Financial Group Chief Investment Officer Brian Andrew shared an economic update and market outlook. Now more than ever, he advised investors to keep short‐term news about trade and politics in perspective and stay focused on investment fundamentals.

“It is important to stay the course though a volatile market. Whether it is short‐term news about trade or the election, it causes investors to take their eyes off of investment fundamentals,” said Andrew. For example, when a politician proposes changes to healthcare on the campaign trail, investors shouldn't overreact by selling health care stocks. The industry is more likely to benefit from the Baby Boom generation entering its high health care spending years than be hurt by a proposed government policy that may take years to enact. Instead, investors should use market news to find attractive buying opportunities.

Market Structure vs Market Cycle

Andrew considers both the structure of the market—such as trends that can take years or even decades to play out — as well as shorter term market cycles that can play out over just a few months or quarters. Some of the important structural factors he is watching include:

  1. Regionalization — After years of moving toward greater globalization, there is now a definitive move toward more regional trade agreements.
  2. Demographics — An aging workforce in the U.S. and Europe is changing economic growth patterns as well as the political dynamic.
  3. China — As the world's second biggest economy, China is seeking to project itself in a different way both regionally and globally.
  4. Technology — Consumers moving online, goods being delivered by drone, and work being automated are putting downward pressure on prices, and these effects are just in the early stages.

Are we facing a recession?

News of an inverted yield curve (short‐term interest rates higher than longer‐term rates) and reports of a slowdown in the manufacturing sector have many worried about a recession. Andrew does not expect a recession in the near term. “Manufacturing is only 15% of the economy. The consumer, which represents nearly 70% of the economy, continues to be healthy.” Andrew also pointed to what he believes to be the “best of both worlds” for businesses — low unemployment combined with low wage growth. Andrew keeps a close eye on wage growth and prefers this number stays below 3%. “Higher wage growth makes it harder for companies to manage costs and avoid raising prices.”

The consumer is also facing what he considers a “goldilocks” economy. “Consumers are benefiting from low unemployment combined with low interest rates. We continue to expect slow but positive growth.”

Trade wars and elections

As an exporter, China has significantly more goods that are subject to tariffs than the U.S. Tariffs have already impacted China which is experiencing slower growth; China has moved to improve its economy by lowering taxes and interest rates. “So far China has faced a greater impact, but they have ways to stimulate growth. But if the U.S. consumer starts to see tariffs on electronics, it could change the calculus.”

Politics will continue to dominate the headlines into 2020, and Andrew cautioned investors to keep the political environment in perspective. He cited a recent study from Cornerstone that tracked people's perception of the economy based on political affiliation. Seventy‐nine percent of Republicans polled felt the economy was good while only 33% of Democrats felt the same. “We are all living in the same world with 2% economic growth and 3.5% unemployment, and yet we all have completely different views of what this means.”

What does this mean for investors?

Continued easy monetary policy from the Federal Reserve will continue to benefit stocks and bonds. Global growth is slowing and there is increased geopolitical risk, and Andrew believes China does matter.

“Stocks are expensive now and have gotten ahead of fundamentals. We anticipate a mid‐ to late‐cycle slow down, but we expect economic growth to continue to be positive.” “Investors should keep the political climate in perspective.”


Brian Andrew

Brian Andrew

Chief Investment Officer | Johnson Financial Group

As Chief Investment Officer, Brian Andrew leads Johnson Financial Group's investment strategy to provide consistent, actionable investment solutions for our clients.


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