Investing in the age of trade wars

Financial markets showed signs of stabilizing on Tuesday, a day after China’s announcement of retaliatory tariffs on 5,140 imports from the United States touched off Wall Street’s worst day since January 3. Are things back to normal, or is a global economic slowdown just around the corner? Nobody really knows what’s going to happen, but there are some encouraging signs for investors. First, it’s true that a collapse of U.S.-China trade discussions could hurt the earnings outlook for stocks. Investors expect that Chinese tariffs might lift corporate costs and lower profit margins, while continued uncertainty surrounding a trade deal will hinder the ability of companies to plan or make capital expenditures. But investors should also remember that despite the seemingly outsized presence of China in the U.S. economy, sales of American goods there are relatively small, just $130 billion of U.S. exports out of a $19 trillion economy. U.S. economic growth remains strong, and corporate earnings — the main driver of stock performance — are still resilient. Net income for the S&P 500 rose 0.6% in the first quarter, according to Bloomberg Intelligence, despite predictions from many that it would fall from a year ago. What’s more, the S&P 500