Mark Twain once joked, “I’ve been through some terrible things in my life, some of which actually happened.” The same can be said for investors. Since the financial crisis, investors have spent a lot of time and energy worrying about events that seemed destined to send the markets into another deep dive. Remember these events?

  • the BP gulf oil spill (2010)
  • the debate / passage of ObamaCare (2010)
  • Greek debt crisis (2010 – 2011)
  • the debt ceiling debates/government shutdowns (2013, 2018 and 2019)
  • the collapse of oil prices (2014)
  • presidential elections (Obama 2012 / Trump 2016)

And while the market reacted to all of these events, creating a lot of uneasiness for investors, it is important to remember that none of these events led us into another great recession/depression. The economy ticked along, corporate profits kept rising, and ultimately the market followed suit.

So the issue du jour is President Trump’s handling of trade issues, particularly US/China trade. Last week, President Trump hiked tariffs on even more Chinese goods; today, the Chinese retaliated by devaluing their currency. These actions have already impacted the markets – the S&P 500 is down roughly 5% from all-time highs a bit over a week ago.

But what is the likelihood that the China trade issue will lead to the next 2008/2009 crisis? Not particularly likely in my opinion. The economy is in a very different place than 2007 – the market is priced at a much more modest level (relative to earnings); corporations have much stronger balance sheets; consumers have less debt, more savings and more income; and our financial system (banks et al) is well insulated from the issue.

In addition, President Trump knows that next year’s election is likely to turn on the economy. It therefore seems especially unlikely that the trade issue will be allowed to damage the economy or roil the markets for an extended period of time.

In the future, I think we will be able to look back on this time period and put it into the category of issues we spent time worrying about that did NOT lead us into a great recession.

If you have questions or want to chat, please let me know. Otherwise, enjoy the end of summer and know that if something changes, I’ll be in touch.