This week in the stock market:
- The Trump administration threatened additional tariffs this week, on up to $450 billion worth of Chinese products. Some experts estimate that negative trade rhetoric since March has cost investors trillions of dollars in market capitalization, which is the total market value of all outstanding shares.
- Wednesday, the Dow Jones Industrial Average (DJIA) marked its seventh consecutive daily loss, closing at -0.2%. This is the longest losing streak since March of 2017.
- Despite trade concerns, most other U.S. stock market indexes closed higher midweek. The S&P 500 was up +0.2%, and The Russell 200 Index (RUT) was up +0.8%, an all-time high for the small cap index.
What is the real cost of trade concerns to the markets?
Talks of an additional $450 billion worth of trade tariffs on Chinese products caused uncertainty in the markets early this week. Many of the U.S. indexes were able to rebound quickly, so what is the real cost of trade concerns on market capitalization?
Market capitalization is the total value of all outstanding shares of a company. When stock prices drop, so does market capitalization. Experts calculate that 7 out of the 12 days that the DJIA was at a loss were caused by negative trade rhetoric. This translates to a cumulative loss of $700 billion in market capitalization. The same days that the DJIA decreased by at least 1% from negative trade developments, the S&P also dropped, totaling $2.2 trillion in market capitalization loss.
Here’s why trade tariffs can affect the stock market: When tariffs are imposed on imports (e.g., steel from China), this can raise the cost of goods and services within certain industries, which could result in slowed business and job loss for companies. Then this could cause investors to sell off stocks of companies that could potentially be affected.
What does this mean for MoneyLion Plus investors?
Although the effect of negative trade developments is market wide, MoneyLion Plus investment accounts are diversified among equities (stocks) and bonds to insulate against market fluctuations. The balance of equities and stocks in your portfolio is personalized for you by our investment experts based on the stated risk tolerance and age information you provided when you joined Plus. To view how your portfolio is allocated, just click on My Portfolio under Investment Account in the Finances tab of the MoneyLion app.
Market movements should be thought of in terms of your personal goals and risk tolerance. If you’re 20 years from your goals (e.g., from retirement or your children’s college), then your account may be able to withstand greater risk in pursuit of greater returns, and will probably be weighted heavier in equities. If you’re closer to reaching your goal, your account will be weighted heavier in bonds, which helps provide a cushion against market fluctuations because bonds offer fixed returns. In essence, they are loans, or IOUs. You loan your money to the bond issuer, and it promises to pay you back plus interest.
Most U.S indexes appear to be on the rebound
Talks of additional trade tariffs did cause a dip in the markets Tuesday; however, investors appeared to be renewed midweek. At closing Wednesday, 7 out of the 11 market sectors within the S&P 500 index rose, pushing the index up +0.2%. The Russell 200 index (RUT) closed at an all-time high, rising +0.8% Wednesday. The Nasdaq composite also had a record high at Wednesday’s closing, increasing +0.7%.
The Dow Jones Industrial Average (DJIA) seemed to go against the grain, marking its seventh consecutive daily loss Wednesday, closing at -0.2%. This is its longest losing streak since March of 2017.
MoneyLion Plus members are on the right track
As a MoneyLion Plus member, you’re invested in a diversified portfolio, which means that your portfolio is managed to help minimize the impact of market declines, while still taking advantage of market increases, helping to keep you on track toward on your long-term goals.
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Did you miss last week's market update? Check it out. Market update: Interest rates rise and two media giants merge
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