The Independent Market Observer

Friday Quick Takes: Jobs, Trade War, and More

Posted by Brad McMillan, CFA®, CFP®

Find me on:

This entry was posted on Jul 6, 2018 2:45:23 PM

and tagged In the News

Leave a comment

trade war“There are decades where nothing happens; and there are weeks where decades happen.”

I don’t normally quote Lenin on this blog—or anywhere, for that matter—but this line is just too appropriate today. With everything going on, I thought I would offer some brief comments on subjects that, I admit, deserve—and will get—greater attention. But for now, here are my quick takes.

Today’s jobs report

The economy added more jobs than expected in June. That’s good news. And it gets better: the unemployment rate rose. How could that be good news? Because it means people are moving back into the labor force at unexpected levels, suggesting that the expansion may have more room to run than we thought and that companies may not face higher wage bills just yet. From an investing standpoint, this is a sweet spot, with continued growth in effective demand but sustained high margins.

The trade war

U.S. tariffs on China went into effect last night, and Chinese tariffs on U.S. goods went into effect today. We are now, so the papers say, at “war.” What most of the media is not saying, though, is that this is a cold war so far, not a hot one. What I mean is this is still playing out at the political level; U.S. tariffs are big enough to make a point but small enough that the point is not yet an economic one. Likewise, the Chinese tariffs are designed to hurt, but they are targeted so the pain is political more than economic.

Remember the original Cold War, the U.S./Soviet Union confrontation, where a full-scale war never happened because it would have been too damaging? Instead, they fought via proxies in political confrontations. The logic is the same today, and so far, the U.S./China trade war is playing out the same way as well. Now we need to watch to see whether negotiations start quietly. This could well end up being a major problem—but not yet.

The debt/deficit

This problem is back—and it’s serious. I was going to write about it today, after receiving several questions from advisors and clients, but other events (see above) caught up with us. We will talk about the deficit problem next week, as it is a definite risk but, again, not an immediate one. Briefly, the important question here is not whether this is a problem—it is—but whether it is a solvable one. The good news? It is solvable, but in terms of how and when, the news isn’t so good. We need to take a closer look, so we can prepare ourselves for what may come. Just as with the cold trade war, things can turn hot pretty quickly.

It's not over yet

If you want to look at the big picture on all of this, consider the stock market. Despite all of these concerns, it continues to recover from what was really not a very big pullback. We are still close to all-time highs, and we look likely to reach them again. As the U.S. economy is healthy, this is not all that unexpected—and it supports the idea that the end of the run isn’t here just yet. Keep that in mind as you read the news.

Subscribe via Email

Crash-Test Investing

Hot Topics

New Call-to-action



see all



The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.


Please review our Terms of Use

Commonwealth Financial Network®