The latest (self-imposed) deadline for the U.S. to reach a NAFTA agreement appears to have been missed, so this situation will take more time to be resolved (possibly past U.S. midterm elections). Bottom line, headline risk related to trade policy will linger and we will continue to watch the narrative out of Washington, D.C. closely for further clarity. Headlines over the weekend regarding U.S-China talks are encouraging.
Conclusion
We continue to favor EM (and U.S.) equities over their developed international counterparts for appropriate investors, primarily due to our favorable economic and earnings growth outlook coupled with attractive valuations. However, we recognize that several headwinds, including rising interest rates (along with Fed rate hikes), U.S. dollar strength, and trade headlines, may lead to continued elevated volatility in the short term. We expect moves in interest rates and the U.S. dollar to be contained, and we are comfortable with the economic risk from U.S. trade policy, though we will continue to monitor that situation closely.
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John Lynch is chief investment strategist for LPL Financial.