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Don’t Put Your Funds in Risk-Based Assets, Analysts Warn


As the stock market continues plummeting due to various factors, many investors are enticed to invest their capital more since they can buy more stocks at a cheaper rate. However, before you actually pour in your hard earned savings, you might want to think twice. An analyst warns the investors that now isn’t a good time to invest your capital and enter the market.

A Goldilocks Economy

UMB Bank Chief Investment Officer K.C. Mathews said that America’s economy is what you call a “Goldilocks economy” where we experience low-interest rates, low inflations, as well as stellar corporate earnings. America is currently enjoying its booming economy with the unemployment rate reaching down to 3.8%, one of the historically low rates in history, but some financial experts are worried this trend might not last.

The Atlanta Fed also forecast the GDP’s growth will increase up to 4.6% in the second half of the year 2018.

Matthews revealed the culprit behind his doubt was the looming trade war. He added that as an investor, he would be very cautious about putting his capital in risk-based assets. While he’s still comfortable with the current performance of risk assets, he warns the investor’s capital might suffer from a heavy blow of “plowing market” unless the trade issues get resolved. Mathews added the market has been experiencing volatile movement and performance ever since President Trump announced his plan to impose a tariff on steel and aluminum last March.

A Losing Streak

Last Thursday, the Dow Jones Industrial had suffered a losing streak for eight consecutive days before it turned positive a day after. Ron Insana, CNBC’s contributor commented on how our current market’s performance is rotating, struggling.

It’s obvious that our market is greatly affected by Trump’s new policies. Furthermore, the concentration of FANG Stocks gains, as well as how the small caps continue to outperform large caps contribute to the market’s volatility. Add the heated tensions of the upcoming midterm elections, as well as the Fed Interest’s impending increased rates, and the new market still remains to be an uncertain place to enter or invest with.

Despite the rising tension, Mathews believes the international community will reach an agreement on how the trade will take place after the imposed tariff. He believes a compromise will be attained.

Mathews added he believed every world leader will cool down while negotiating for a trade agreement. While the world leaders may have differing opinions, he believes they won’t jeopardize the economic growth with their policies. Therefore, the economy’s basic foundation like its growth, decent corporate earnings, and long risk-based assets remain intact.

The Effects of Trade Wars

Last March 2018, President Trump surprised the international community when he announced his Administration’s plan to impose tariffs on metal imports like aluminum and steel. His announcement ignited the tensions in the trade market as giant countries like the European Union, Japan, China, and even the United Kingdom warned the President of retaliation on U.S. brands should he implement his plans. However, the President remained firm in his decision to impose tariffs and he even welcomed the idea of trade wars.

: President Trump claims the imposed metal tariff is the key to bring the U.S. steel industry in the competitive market

While Trump’s latest action was welcomed by US steel companies a few months ago, they claimed they’ve changed their views about it recently. This was because Keg Company recently announced their layoffs after the imposed metal tariff. Paul Czahor, the CEO of Keg revealed how their production cost had increased up to 4% since the metal prices have gone up to 35%. While their profit didn’t lessen their cost any more.

This forced Czahor to relinquish 10 employees from their original 30-strong manpower. He noted how their recent layoff contradicted Trump’s promise of opening up more job opportunities for the nation. However, he still hopes that this layoff is only temporary and that they can still fix this problem later.

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