Weekly Market Bites

end of week markets update

1) Here’s a summary of markets year-to-date:

2) Valentines day is just around the corner and financial markets are already bringing surprises.

All jokes aside, a trade war between the U.S., Canada, and Mexico would hit all three economies, in varying degrees.

That’s why Monday morning, the stock market took a big drop at first.

For Canada and Mexico it would be a gut punch:

Why is the impact so big?

• Trade accounts for +70% of both Canada's and Mexico's GDP

• In contrast, imports and exports make up just 25% of U.S. GDP

• +70% of Canada and Mexico’s exports head to the United States

Even if the tariffs get resolved quickly there could still be lasting damage:

What about the US? Since the economy is largely driven by consumer spending, tariffs wouldn’t hit GDP as hard.

Although the US still trades a lot with Canada and Mexico. Check out the image below of trade flows with individual U.S. states:

Beyond GDP; the tariffs could drive up prices, adding inflationary pressure on goods and products.

The truth is who knows what’s gonna happen.

Are Trump’s objectives really about trade? raising revenue with tariffs? Immigration? Drug control? Scoring domestic political points? Sending a message to China?

Maybe all of the above?

3) The showdown between the three North American amigos might wrap up soon. But the fight with China? That’s a whole different ballgame.

Canada and Mexico aren’t geopolitical rivals, nor do they pose any real threat to U.S. power.

China is a well oiled export machine. 7/10 of the largest and busiest ports in the world are in China:

To mitigate risks associated with US trade tensions, China has been actively working to reduce its dependence on the US market:

• Only about 14% of China's total exports were destined for the United States (as of 2023). It used to be almost 60% around 20 years ago…

They have been expanding trade relationships with other partners around the world. In the last 20 years, China has overtaken the U.S. as a top trade partner worldwide.

Check out the images below: blue means higher trade with the U.S., red means higher trade with China.

And those efforts have paid off very well:

We’re potentially in the early innings of this trade war. Which is really about way more than trade.

Are both sides just putting on a show for their domestic audiences, or are they actually gonna see this through?

4) Whatever happens, remember my friends:

Being up to date is important but “don’t get caught up in the day to day noise” of the news cycle and financial markets:

Your objective is to not panic and stay invested.

Stay focused on the long term when investing.

charts

• Mexico: Cars and other manufactured products are the most valuable imports

• Canada: Imports are overwhelmingly oil and gas, followed by cars

• China: Electronics and other manufactured products are the biggest imports

US consumers are the most bullish on the equities in decades.

Personally I would like to see everyone less excited, but this is not a reason to sell on its own.

And finally, some parting wisdom