(New York)

The trade war is very scary for everybody. From politicians to executives to investors (in both nations), everyone is afraid of the implications of the trade war. However, there are some good reasons not to be. Firstly, while there are fears of a market tailspin, the reality is that the dovish Fed should provide a safety net. Secondly, many worry the trade war could bring the economy to a standstill, but remember that only 2.4% of US economic output is at risk of Chinese tariffs. Finally, many fear China could dump its $1.1 tn of Treasuries. The truth is that doing so is very unlikely, and even if they do, it is a small portion of the $22 tn market.

FINSUM: The general theme to take away here is that China is not as big a part of the US economy and markets as many seem to assume it is. That said, the secondary effects of a trade war, such as the psychological impact on business and the effect on the rest of the world, could be considerable.

(New York)

Bonds and stocks are at odds right now. Yields have dropped considerably as the bond market is predicting pain to come. Stocks have sold off, but are still around all-time highs. If you look at how money markets are currently priced they imply a whopping 20% decline in stocks. There is not a much macro data to support the money markets’ pricing, but it is certainly a sign to pay attention to. “The rates market has probably overreacted relative to other asset classes in the last two weeks. However, the macro backdrop is fundamentally more uncertain today”, says Deutsche Bank, continuing “The renewed trade tensions create downside risks which were deemed to be negligible 2 months ago”.

FINSUM: Stocks are going to react to economic data and the trade war, so the current forecasts for stock prices are only as good as one’s ability to prognosticate those factors.

(New York)

Wirehouse business may have gotten a boost from the demise of the fiduciary rule, but its decline has been uninterrupted for years. New data from 2018 is in and shows that wirehouses shed 5.7% of their client assets during the year. Advisor headcount also dropped by 403 advisors, brining the total to 54,030. According to the study, put out by Aite Group, “Wirehouses have steadily ceded market share from 2008 to 2018 … The segment has lost a total of 10 percentage points over that time period. As wirehouses continue to rationalize the size of clients they serve in advisory relationships, they also continue to see an outflow of advisors into other industry channels”.

FINSUM: RIAs and IBDs have been taking market share from wirehouses for years and the reasons why are obvious—better selling points for clients and better compensation. We think it is also a product of the demographics of the industry—as advisors get more senior and established the economics of going independent become more alluring.

(New York)

In a great example of how Trump’s new tariffs on China will reverberate around the US economy, Nike and Adidas are panicking over the new Trump moves. The pair just led a consortium of 173 companies who penned an open letter to the President imploring him to stop the tariff move immediately. Nike and Adidas say the tariffs will be “catastrophic”. Clothing and footwear already endure some of the highest tariffs, so hiking them further will increase costs and create huge logistical complications. The letter summarized their view this way, saying they will be ”catastrophic for our customers, our companies, and the American economy as a whole”.

FINSUM: If you are a company that makes or imports a lot of your merchandise from China, this is going to be a very rough period. We expect the market will start to take this into account as the full impact of the trade war is digested.

(San Francisco)

One of the trade war’s big victims could be Apple. While much of the trade war panic has been focused on other products, Apple could be the biggest victim to suffer. The the reason why may have more to do with sentiment than with tariffs. While there is much talk of Chinese “national champions”, Apple is undoubtedly an American national champion in China, and with sentiment souring against the US in the face of the trade war, it is likely that Chinese consumers will move towards purchasing domestic smart phones. Apple will be forced to raise prices because of tariffs, which would accelerate the trade. China accounts for about 18% of Apple’s revenue and a higher percentage of its profits.

FINSUM: There could be a big hit to Apple’s top and bottom lines here. China could also take measures to specifically wound Apple the way Washington has done to Huawei. Anything seems to be fair game right now.