(New York)

A lot of investors may be asking themselves whether stocks will be directly impacted by a trade war. In the last several trading days, the market seems to have shrugged off the increasing trade tensions. However, JP Morgan is warning that the burgeoning trade war may wreak havoc on the market. The rising tariffs now occurring globally follow 50 years of increasing free trade, so there is little modern precedent for what is occurring.

FINSUM: In our view, the market does not have a good feel for pricing the risk of a trade war because it has been so long since investors have seen anything like it. Beware.

(New York)

Those seeking to buy income-focused investments have a dilemma on their hands right now. Is it safer to buy high-yielding blue chips like AT&T, or better to buy a diversified high yield fund? Barron’s tries to answer this question and gives a definitive opinion—the bond fund. While both may offer similar yields of between 5-6%, holding money in just one or a small handful of blue chips offers much more risk. Not only could dividends be cut, but underlying businesses could deteriorate. And without the benefit of diversification that a broad ETF offers, a portfolio could see heavy losses.

FINSUM: This is a good, basic article to share with any clients who ask why they are buying debt instead of just owning a few stocks.

(New York)

Investors look out, it is time to go on the defensive, at least according to JP Morgan. The top strategist at JPMorgan Asset & Wealth Management, Michael Cembalest, has just told investors that the growing trade war and its threat to markets and the economy means investors need to be very worried. Cembalest points out that this will be the first sustained rise in tariffs across the global economy in 50 years and it is a profound shift away from decades of historical precedent. If the US proceeds with a further $200 bn tariff package on top of its $34 bn package, then markets could be in for a wild ride, says JP Morgan. They advise to focus on consumer staples and tech stocks.

FINSUM: This is a pretty stark warning from JP Morgan and it does make sense. Because there is little recent precedent for trade war, the market may not be accurately pricing the threat it poses.

(New York)

One of the market’s big worries over the last few years has been centered around the idea that ETFs may have some sort of implosion the next time there is a Crisis, or at least some major volatility. However, S&P has just come out with a report saying that won’t be the case. The piece cites the numerous instances of when major volatility hit markets, including this past February, and ETFs held up just fine. That said, ETFs do have the potential to be distortive, and they have been implicated in some major flare ups, such as that linked to the CBOE Volatility Index this winter. S&P concluded that “There’s not much cause for concern for systemic risk … But we have been able to quantify that there’s some minimal impact”.

FINSUM: Our feeling is that equity ETFs should be fine. However, for less liquid fixed income and other low liquidity areas, ETFs could theoretically have a “liquidity mismatch” which might cause some issues.

(Houston)

The oil market is continuing to experience some deep tremors after a great year. The oil benchmark dropped another 1% yesterday, bringing prices down to their lowest level in three months. After months of rising on concerns of weak output, the market is plunging on the threat of oversupply, especially from Russia and OPEC countries. Additionally, the IEA put out a report saying it saw global oil demand falling, another factor which weighed on the market. In addition to worries about rising supply and weakening Chinese GDP, Commerzbank commented that “The unexpected increase in U.S. crude oil stocks by 629,000 barrels reported by the API is generating headwind, as is a sharp rise in Russian oil production”.

FINSUM: It is starting to feel like the tide might really be turning on the oil market, which has had a great 18 months.