Thinking about investing in the stock market recently? Well, now may not be a good time to invest for two reasons: tariffs, which are taxes added on to imports or exports; and high market valuations where a market value is an estimate of how much stocks are worth.
There have already been tariffs of around$50 Billion that were imposed on Chinese imports by the Trump administration. Additionally, President Trump on Friday announced a plan to add $267 billion in tariffs on Chinese imports. In response to America’s measures, China threatened to retaliate by adding more tariffs. The consequence of these tariffs, if imposed, would cause the prices of imports to rise, which could decrease consumer spending and impact stock prices.
A trade war with China alone sounds tough to deal with, but the other issue is that President Trump has also threatened Mexico, Canada, and nations in the European Union with tariffs on their imports. If additional tariffs are established, then consumer spending will be further impacted by potentially higher prices on goods, causing firms to forecast a lower guidance, and in return, lowering the prices on the stock market.
2. High Valuations
Janet Yellen, the former Fed Chairman, stated that the market valuations were high. The statement came after the S&P 500 had surpassed its all-time high of 2872.87 In January 2018. The S&P 500 is a way to look at the market performance that shows the 500 largest stocks in America that are each weighted by market capitalization. The S&P 500 has surpassed its all-time high, being up over 300% since March 2009, which was around the time of the recession. However, the market may not be able to perform better due to the tariffs, which would give firms a pessimistic outlook and consequently lower market prices.
Is There Any Hope?
Although Mrs. Yellen stated that the valuations are too high, she also said that it likely doesn’t mean that they are overvalued. Although this sounds like some relief because it won’t lead to a market correction that would stock prices to drop, she made this statement in December 2017 and a lot of changes have happened in the market since then. If one would like to invest right now, it is safer to invest in the stock market for a short-term investment because there are big companies, such as Amazon and Nvidia, that have performed well during the recent earnings season and may have more good earnings reports to come in the near future. While there is still hope for great returns in the short term, it is definitely not worth holding out for the long-term with the present uncertainties in the market.