What’s on Tap: Trade Worries Dominate Global Markets

  • Rare Earth Retaliation for Trade Tariffs?

  • Brexit Shifts to ‘Mexit’: May to Bow in June

  • Financial Planning Friday: Do I Really Need a Budget?

  • Podcast: Get Smart—Saving and Paying for College

  • Looking Ahead to Consumer Sentiment and Economic Growth

The drums of war—a trade war with China—are beginning to beat louder, rattling markets in the U.S. and abroad. Add to that U.K. Prime Minister Theresa May’s announced resignation, which thrust Brexit back into the spotlight, plus rising tensions with Iran, and you had the ingredients for an almost perfect market storm. Despite all these geopolitical concerns, U.S. stocks are roughly where they were a week ago and still show solid returns for the year.

For the year through Thursday, the Dow Jones Industrial Average and the broader S&P 500 have returned 10.3% and 13.5%, respectively. The MSCI EAFE index, a measure of developed international stock markets, is up 8.9%. As of Thursday, the yield on the Bloomberg Barclays U.S. Aggregate Bond index sat at 2.82%, dipping slightly from last week’s 2.90% and down from 3.28% at 2018’s end. On a total return basis, the U.S. bond market has gained 4.0% for the year.

Rare Earth Retaliation for Trade Tariffs?

U.S.-China trade talks continued this week but are seemingly no closer to a resolution. President Trump’s vacillations provoked market oscillations, with no clear trend discernable: One day, stock markets declined on the news of a ban on doing business with China’s telecom-giant Huawei, only to rally the next day when the ban was pushed back 90 days to give companies more time to adjust.

So, we shouldn’t be surprised that China is beginning to play a stronger hand at the negotiating table, signaling this week that it may pull out its rare-earth minerals card.

Rare-earth minerals are so called because they’re just that, rare. Ever heard of cerium (Ce), scandium (Sc) and europium (Eu)? Most people haven’t, at least not since high school science class. But their obscurity does not make them trivial.

Though the 17 rare earth elements can be found in trace quantities in many kinds of geological ores, deposits large enough to mine cost-effectively are incredibly scarce. And China has most of them.

China supplies 80% of the rare earth imports to the U.S. and is the largest global producer of these elements. If China decides to strategically retaliate against U.S.-imposed tariffs, they may halt or limit export of rare-earth elements to the U.S. This could have sweeping impact on a wide range of industries.

These rare-earth elements and others are used in everything from magnets, aerospace components and energy-efficient light bulbs, to cancer treatments, spark plugs, lasers and motors for electric cars. And that’s just the short list.

Whether it’s Huawei, rare minerals or expanded 25% tariffs, negotiators will most likely focus on a deal that saves face for the leaders of both countries when they next meet (possibly next month). We think an agreement will be struck, eventually, but meaningful changes—such as reforms to China’s laws regarding intellectual property—remain a long shot.

Not surprisingly, these trade uncertainties have jolted this year’s market rally. After the S&P 500 index hit an all-time high on April 30, we’ve seen a 4.2% drop off that mark through Thursday—by no means terrible, but enough to rattle some investors’ cages. China’s Shanghai Composite has declined 7.3% this month.

Brexit Shifts to ‘Mexit’: May to Bow in June

U.K. Prime Minister Theresa May’s announcement Friday that she will step down in two weeks’ time (now referred to as a “Mexit”) was sudden, but not surprising. Uncertainty over Brexit has cast a pall on investors and traders for months, and May’s inability to get her deal approved by Parliament has played a big part in preventing a resolution.

It’s not clear, however, that her resignation will be enough to break the logistical logjam, with her Conservative party now set to spend weeks resolving a leadership contest. Meanwhile, polls suggest Nigel Farage’s new Brexit party is set to perform extremely well in European Parliament elections, bolstering those who favor a hardline exit, deal or no deal, from the European Union.

So far, market reaction has been positive but somewhat tepid—the Stoxx Europe 600 rallied just 0.5% on the May announcement. The British pound-to-dollar exchange rate rose to $1.27 on the news after a week of declines. As with the U.S.-China trade turmoil, questions will remain until something actually gets done.

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 Financial Planning Friday

Do I Really Need a Budget?

Let’s be realistic: If you want to see someone’s eyes glaze over, just mention the word “budget.” But reaching long-term financial goals requires saving and investing—and you can’t do either of those without spending less than you bring home. A budget is simply a tool that helps you understand your spending while staying cash-flow positive.

A good budget, like a good diet, helps maintain the healthy habits that can provide for a lifetime of responsible spending and retirement-building saving. But, like trying to live off nothing but kale and grapefruit juice, extreme, restrictive budgets often prove unsustainable.

Not everyone needs a budget. But you may find one helpful if you: 

·     Often have less money in your account at the end of the month than anticipated

·     Are using credit cards or other forms of debt to finance expenses

·     Have income and expenses that vary a lot month to month

·     Want to save towards a clearly defined financial goal

Think of a budget as a tool, not a burden. In another parallel with dieting, while some people like to count every calorie and track every step to make sure they’re always on track, others find that such close monitoring of their habits can lead to unhealthy, obsessive behaviors. If you want to be more relaxed with your budgeting, here are some tips to achieve success without totting up every penny:  

·     Pay yourself first—have your employer or a service automatically direct a portion of your paycheck to savings and investing accounts before it hits your checking account

·     Pay off credit cards in full each month 

·     Use a program like Quicken or Mint to track your spending automatically

Whether or not you use a detailed budget, we recommend tracking spending over a period of one or two months to get a good understanding of where your money is going. With that knowledge, it’s easy to create a more complete financial plan.

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Podcast: Get Smart—Saving and Paying for College

You can’t count on the stock market always going up, but when it comes to college, costs never seem to fall. Climbing tuitions make education savings plans more important than ever.

With “529 Day” (May 29) right around the corner, Chief Investment Strategist Charlie Toole led a discussion on The Adviser You Can Talk To Podcast about 529 education savings plans and UTMAs. Charlie sat down with two financial planners, Victor Colella and Andrew Busa, to talk about financial aid considerations and how to manage your investments as your future scholars grow up.

Listen to our “Saving and Paying for College” podcast today.

Looking Ahead to Consumer Sentiment and Economic Growth

The markets and Braver Capital Management’s offices will be closed Monday in observance of Memorial Day. We will be back at our desks and ready to assist you on Tuesday.

In the trade-shortened week to come, economic data may be scanty but impactful, with reports expected on personal income, spending, and savings, as well as on consumer sentiment, inflation gauges and a revision to the initial estimate of first-quarter economic growth (GDP currently stands at a robust 3.2% annualized rate).

If you’d like to learn more about our tactical or fundamental strategies, please contact Steve Johnson at 844-587-7393 or info@bravercapital.com.

In the meantime, all of us at Braver Capital Management wish you a safe, sound and prosperous investment future and a happy Memorial Day weekend.

Please note: This update was prepared on Friday, May 24, 2019, prior to the market’s close.

This material is distributed for informational purposes only. The investment ideas and expressions of opinion may contain certain forward-looking statements and should not be viewed as recommendations or personal investment advice, or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.

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