How to invest during a trade war

A lot has happened with news of tariffs and the threat of a trade war. The U.S. dollar, as a consequence, rose against a basket of currencies as high as 6.6% since mid-April. A diversified investment portfolio that’s rightly invested in foreign developed and emerging stocks, suffered 6.5% and 10%, respectively, as a result.

A strengthening dollar was to be expected as talk of tariffs hit headlines. Tariffs increase the price of imported goods so much that it significantly curtails demand for the currencies of exporting countries. Other reasons for a strong dollar are the Federal Reserve’s push for higher interest rates and the dropping supply of crude oil, which is priced in dollars, by Venezuela and Iran.

It’s worth noting that markets moved because of headlines and remains in a trading range (see chart). It’s too soon to see the impact from underlying fundamentals, which are still developing. In addition, there are other stimulus measures at work which could continue the 10-year, bull market. This includes the tax-cuts this year which is driving record stock buybacks and the repatriation of corporate offshore earnings. When money flows to the U.S. it’ll likely continue to go into S&P 500 stocks and bonds.

To insulate your portfolio from a short-term stronger dollar, continue with your domestic stock and bond holdings and recognize that a dollar reversal could soon be approaching. Think long-term because there’s still plenty of time for emerging markets to take their foothold as the world’s largest consumer group. For a near-term potential fix add crude oil to your commodity mix, which may be in the sweet spot to realize gains in the short-run. Oil is up 16% since mid-April.

At Eureka Wealth Management, I help my clients understand how trade policy can impact their portfolio and give options for limiting risk and identify trends to maximize potential return. I also design your portfolio to your retirement goals, taxes, and risk tolerance. Call me for a free, initial consultation at (760) 537-0791 or online at eurekawealthmanagement.com.

S&P 500 in blue vs U.S. dollar index in red