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Why Wall Street's Enthusiasm for Trump's Trade War Truce Was So Temporary

By Motley Fool Staff - Dec 5, 2018 at 10:29AM

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Behind the headlines, not much has been agreed to yet, and the devil is in the details.

One of the major headwinds facing the global economy is the trade war being pursued by the leaders of the United States and China. Tit-for-tat tariffs and other punitive measures have had investors running scared for months. So when President Trump and his administration began spreading the word that he and Chinese President Xi Jinping had agreed on a three-month pause in the financial hostilities, markets breathed a sigh of relief, and major stock indexes headed significantly higher Monday.

But, as MarketFoolery host Chris Hill and senior analyst Jason Moser note in this podcast segment, the relief was brief -- all too soon, the benchmarks gave back most of those gains. The two consider the longer-term outlook and reflect on the best way to invest in such uncertain times.

A full transcript follows the video.

This video was recorded on Dec. 3, 2018.

Chris Hill: We should probably start with the market itself, which is up pretty big this morning on the latest trade announcement. In this case, it's that the leaders of this country and of China have said "Hey, why don't we take a break for the holidays? Why don't we just call a little truce and get back to this? Step outside, have a cigarette. We'll get back to this sometime down the road."

Jason Moser: Yeah, why not? You're right, the market is up today. It was funny, I think I saw something cross my Twitter feed on Saturday about this. The next step in my mind is, "Oh my God, the market is going to go ballistic on Monday with this news, it'll be so happy." Of course, futures were indicating upwards of 450, 500 points on the Dow. That's how it opened. You look at it now, as of taping, and you're looking at a Dow up maybe 150 points. The S&P, same basic thing, up just a little bit more than 0.5%. I think perhaps the euphoria is wearing off. The fact of the matter is, like you said, this is, "Let's take a break." It's not a resolution? It always befuddles me as to why you see such enthusiasm on news like this when you know essentially nothing has been accomplished. That's where we are. If anything, maybe this buys a little bit more time in that there is not some bottom line solution or compromise that has been reached that one side's not very happy with. At the end of the day, for all of what President Trump is trying to accomplish, and obviously, I think he still prides himself on being a dealmaker, this is probably just part of that, figuring out how to reach the fairest deal for both sides involved. I'm sure something will come out of all of this, but who knows when that'll be in.

This really is, in a nutshell, why we invest the way we do here. Doing the work upfront on the businesses that we want to own, understanding that you can't avoid situations like this. If you're going to be an investor, you're going to run into situations like this. You don't want to be making investing decisions based on these types of non-events.

Hill: Right. You look at the comments from President Trump, President Xi, if nothing else, headlines like this are maybe a good opportunity for investors to pause for a second and say, "Well, wait a minute. What are the stocks in my portfolio that might be impacted by this?" And if you're, say, a shareholder of Caterpillar, if you own one of the big automakers, that situation, then yeah, this is something you have to consider a little bit more closely as opposed to if you look in your portfolio and you own, say, Home Depot or Dunkin' Brands or something like that that's not as exposed to this type of trade talk.

Moser: Yeah. I mean, good businesses are going to be good businesses regardless of this type of news. It made me think back a little bit further to Alibaba and Jack Ma. The reason why I say that is, the headline that seems to come out of here is that ultimately, President Trump is trying to get China to buy more American stuff, to balance that trade deficit a little bit. And I get that. That makes sense. You want some sort of equilibrium there. To that point, though, one of Jack Ma's goals in Alibaba, in growing that business in the retail space in China, was to make China more of an importer, to bring more stuff into China as opposed to sending all that stuff out. So, that headline today is certainly in line with what Jack Ma has been trying to do at Alibaba all along. And Alibaba matters, obviously. It's a tremendous company, and it does a lot of business, and it's responsible for a lot of the money that flows through China's system.

I think that makes a lot of sense. For an economy like China's to continue to evolve and advance, they're going to need to become more of an importer. That's bringing things in from places like the United States or Brazil or Russia. Those are the countries that Ma has even called out. That's in line with what we're seeing today. I'd like to believe they can get to that point some time or another. It's going to take some time, obviously. I tend to look at these types of headlines and think, OK, it's nice when the market pops on news like this. It doesn't make me want to do anything differently. I kind of like it when the bad news comes out and you see the market overreact to the downside, because then there is an opportunity to add a company or two to your portfolio that you don't own.

These days, you have to be ready to pull that trigger. News travels so quickly, the market adjusts a lot more quickly than it did 10, 20 years ago.

Hill: To go back to something I've said before, one of the things I've learned in my investing lifetime is -- and when I say I've learned it, I've learned it the hard way -- don't fall in love with a price. Don't fall in love with an exact price, where you look at a stock and you say, "Well, I want it to fall to this point." To what you just said, we are seeing these types of drops, and they show up in individual stocks in the form of a 5% discount. That's really the question you need to be ready to pull the trigger on. "I like this, it's on my watchlist. Now it's 5% cheaper." What are you going to do?

Moser: I go back to a lesson that my father taught me years ago as a kid, learning how stocks worked. He always said, and he says it even today, listen, you're never going to buy at the bottom and sell at the top. It's just not going to happen. When you buy a stock, be ready for it to go down and be worth less than what you paid for it at some point. And at some point down the road, you're going to sell. And you're going to look back there later on, and that stock will probably be higher at some point, too. So, to your point there, yeah, don't get too married to a particular price point. Understanding the company, it's general worth, the longer that you stretch that timeline out, the less that price at that moment really matters.

I'm a big believer that price matters. Don't get me wrong. I'm not saying buy at any price. But don't get too anchored when opportunity presents itself. Sometimes you just have to go ahead and take the plunge.

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