Market Shrugs Off Iran, Cocoa Cartel Planned, Trade Deficit Falls
In today’s Steady Investor, we look at what is going on in the markets and our key takeaways and questions for investors to consider, such as:
- How could tensions between the U.S. and Iran impact the markets?
- Will the conflict impact oil prices?
- The top two cocoa producers in the world join forces
- What of the state of trade between the U.S. and China?
U.S. – Iran Geopolitical Pressure Builds, Then Subsides – Tensions were high this week as the U.S. and Iran engaged in tit-for-tat military provocations, with many fearing the crisis could spiral into war. By week’s end, the pressure had subsided, but the situation remains on high alert as outcomes in geopolitics – particularly ones that involve Iran – tend to be unpredictable, in our view. For their part, the equity markets largely shrugged off the escalation and continued ticking higher even as bombs were falling. 1 Throughout history, geopolitical pressures and war are (unfortunately) common occurrences, but, in our view, they do not automatically imply weak markets. In our view, a geopolitical event is rarely influential enough to end a bull market or economic expansion on its own. Other factors like weak growth, rising interest rates, falling earnings, low liquidity, and/or asset bubbles (euphoria) must be present as well.
Oil Prices Ticked Higher, But It May Not Matter – Oil prices ticked higher at the first sign of conflict, though not significantly. Some investors were concerned about comparisons to 1990, when Iraq invaded Kuwait and oil prices shot higher, triggering a recession. In 1990, the U.S. was a major oil importer, and we were not a dominant energy producer on the global stage. Today, we are the world’s largest oil producer, and our reliance on imports has been in decline for years. Though Iran has the capability of disrupting oil markets, the impact of doing so may not be as significant as many believe. Oil prices are already up 20% from early October, which corresponded with a strong performance period for the S&P 500. What’s more, when oil prices were sustained above $100 a barrel in the first half of the last decade, stocks managed to continue climbing higher.2
Do You Know How These Economic Indicators Could Affect Your Investments?
It can be challenging as an investor to stay on top of all the important events and economic indicators that shape the market, especially when geopolitical tensions increase as they did this week.
While these increased tensions do not automatically imply weak markets, there are other important economic indicators and financial statistics that can provide insight into how key variables might influence your returns, and could potentially help you reach your financial goals with more confidence.
If you have $500,000 or more to invest, get our free guide, 6 Essential Concepts to Help You Pursue Investing Success.3 It’s a valuable resource that walks you through influential data, from the unemployment rate to corporate earnings, and our views on how these factors could affect your investments.
Download Our New Guide – 6 Essential Concepts to Help You Pursue Investing Success
The OPEC of Chocolate? – The top two cocoa producers in the world – Ivory Coast and Ghana – are banding together to form a ‘coalition of cocoa,’ where they can wield more control over the world’s cocoa prices. The two countries combined account for nearly two-thirds of global cocoa production, which in 2018 generated $107.3 billion in sales. Cocoa farmers in both countries often live at or below the poverty line, so the hope is that putting a premium on cocoa prices can enhance their standard of living. The partnership, which may be dubbed “COPEC,” is set to go into effect this October, with an expected $400 per metric ton price increase (+18%) scheduled.4 Consumers might reasonably expect that by Christmas this year, the chocolate stocking stuffers and the chips for Santa’s cookies may end up costing a little more.
The State of Trade – New tariffs aimed at Chinese imports that landed in Q4 caused a slide in U.S. imports in November, but we also saw imports increase in exports in the same month. The end result was an objective that the Trump Administration has long sought – pushing the trade deficit to its lowest level since October 2016. The tariffs on consumer goods like footwear and electronics spurred the decline in imports, but because of the “Phase 1” trade deal reached at the end of the year, $120 billion of Chinese imports are about to see tariffs cut in half – from 15% to 7.5%.5 Many expect this tariff cut to result in positive contribution to U.S. GDP going forward, where it was a drag in the back half of 2019.
It can be challenging as an investor to stay on top of the unexpected surprises, important news stories and economic indicators that could shape the market in 2020. In addition to keeping up with news that could impact the market, it is important to understand key economic indicators and financial statistics that could influence your investments.
From the inflation rate to the new corporate tax rate, insight on these factors can help you better understand how these variables might influence your returns, and could potentially help you reach your financial goals with more confidence.
If you have $500,000 or more to invest, get our free guide, 6 Essential Concepts to Help You Pursue Investing Success.6 It’s a valuable resource that walks you through influential data, from the unemployment rate to corporate earnings, and our views on how these factors could affect your investments.
2 The Wall Street Journal, January 6, 2020. https://www.wsj.com/articles/oil-extends-climb-on-threat-of-iraq-sanctions-11578316490
3 ZIM may amend or rescind the guide “6 Essential Concepts to Help You Pursue Investing Success” for any reason and at ZIM’s discretion.
4 The Wall Street Journal, January 5, 2020. https://www.wsj.com/articles/new-cocoa-cartel-could-overhaul-global-chocolate-industry-11578261601?mod=djem10point
5 The Wall Street Journal, January 7, 2019. https://www.wsj.com/articles/u-s-trade-gap-narrowed-8-2-in-november-11578403976
6 ZIM may amend or rescind the guide “6 Essential Concepts to Help You Pursue Investing Success” for any reason and at ZIM’s discretion.
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