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Market Selloff? Nothing has changed.

03.25.2018 | Ben Phillips, CFA



We’ve been banging the drum pretty hard on Trump’s protectionist policies since January. After all, Trump campaigned on protecting America through tariffs and tough trade deal negotiations, and his rhetoric has stayed consistent. He even bolstered his protectionist ideology with the promotion of Peter Navarro. In our view, not much has changed.


You can find our thoughts on NAFTA, China, steel tariffs, and solar panel tariffs in the EventShares Knowledge Library. So instead of covering Trump’s protectionist policies for the third time in as many weeks, we want to take a moment to reflect on last week’s market selloff.


For the second time this year, the markets experienced strong selling pressure. This time it was news of Trump’s China related tariffs. Investors immediately hit the sell button, as they questioned future US and global growth in a trade war. It was brutal in the markets and caused us to pause. But what changed to cause the selloff?


Trump’s Consistency


Neither Trump’s presidency nor his rhetoric on China are new. On August 14, 2017 , he ordered an investigation of China under Section 301 of the Trade Act of 1974. And then there was the Section 301 China hearing on October 10, 2017. Not to mention Trump is ~25% through his second year in the White House. Markets should be aware of his policy goals and operating style.




Trump’s first year was full of controversy: deportations/travel ban, failed Obamacare repeals, White House departures, James Comey’s firing, and Mueller’s Russia investigation. Those aren’t minor issues. Each issue could have derailed the markets for multiple reasons. Yet investors seemed to ignore all that noise in 2017 as the S&P 500 gained a total of 21.8%. We’re left asking ourselves: What’s different in 2018?


Market Wakes Up to Trump’s Trade Policy


Our friend, Greg Valliere, summarized the big economic issues last week: decreasing GDP growth estimates for Q1 2018, dormant inflation, and 10-year Treasury yields seemingly unable to penetrate 3%. As Greg mentioned, the first quarter seems to present GDP issues each year. Plus, economists are estimating stronger GDP growth in the remaining quarters of 2018. Inflation also appears to be subdued right now, with bond investors seemingly unconcerned with Washington DC’s blockbuster spending and last week’s Federal Reserve rate increase . So we’re left trying to understand the sudden selloff.


It’s easy to point to Trump’s protectionist policy, but that’s not new. While most investors were watching the inflation trade, policy investors were focused on Trump’s approach to global trade. Maybe it’s the market’s psychology that has investors searching for any reason to sell stocks? Or maybe it’s that Trump’s deregulatory agenda is already reflected in stock prices? Regardless, it appears that investors are exercising more caution in 2018, with one hand on the sell button. We’ll be closely monitoring policy’s impact on the markets and responding accordingly. Stay tuned.





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Active Weighting Advisors LLC ("AWA") is an SEC-registered investment adviser that manages ETFs under the brand name EventShares Funds. Mr. Phillips is the Chief Investment Officer of AWA. The views expressed are subject to change, and no forecasts can be guaranteed. The comments may not be relied upon as recommendations, investment advice or an indication of trading intent. AWA is not soliciting any action based on this document. In preparing this document, the author has relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources. Investing involves risk, including the possible loss of principal and fluctuation of value. Mr. Phillips and AWA disclaim responsibility for updating information. In addition, Mr. Phillips and AWA disclaim responsibility for third-party content, including information accessed through hyperlinks. For more information about EventShares, contact us by calling 877.539.1510 or visit our website at www.EventShares.com.