Trade talk trouble took a toll last week

Major U.S. stock indices moved lower when trade talks between the United States and China broke down. The Standard & Poor’s (S&P) 500 Index, Nasdaq Composite, and Dow Jones Industrial Index all finished the week down between 2 percent and 3 percent, reported Ben Levisohn of Barron’s.

Despite the weak weekly performance, the S&P 500 remains up 14.9 percent year-to-date.

The deadline to settle U.S.-China trade issues was Friday. When it passed without any resolution, the U.S. increased tariffs on Chinese goods to 25 percent, reported the BBC.

The economic impact of higher tariffs may be relatively small; however, the impact on business confidence and global markets could be significant, reported Capital Economics.

“We think that the direct effects of President Trump’s threatened tariff hikes could reduce Chinese GDP by up to 0.4 percent and that the associated retaliation would have only a marginal direct impact on the United States. The effects on business confidence and financial markets around the world could be more significant, potentially adding to reasons for renewed policy loosening…In theory, if all else were unchanged, the increase in tariffs would amount to a small fiscal tightening in China and the United States. But both governments have avoided this by spending the proceeds on aid for the most affected parties.”

Bond markets reflected uncertainty, too. The yield curve, which has been flirting with inversion for some time, inverted briefly on Thursday, reported Alex Harris of Bloomberg. A persistent inverted yield curve – featuring a lower yield for 10-year Treasuries than for three-month Treasuries – sometimes signals recession.

David Lynch and Heather Long of The Washington Post reported tariffs imposed on other countries have yet to be removed, including those on steel and aluminum imported from Mexico and Canada.

INDEPENDENT THINKING IS IMPORTANT

In The Wisdom of Crowds, James Surowiecki shared a story about Francis Galton, a Victorian-era statistician and scientist whose “…experiments left him with little faith in the intelligence of the average person.”

Jacob Goldstein and David Kestenbaum of Planet Money summarized the story like this:

“One day, Galton goes to a country fair. This was about a hundred years ago in England. And there’s this contest going on at the fair – guess the weight of the ox. Galton’s a scientist and a statistician. And he figures, hey, I can do an experiment here, right? He figures, I’m going to take everyone’s guesses, take the average and compare that to the actual weight of the ox…The ox weighed 1,198 pounds.”

The average of the estimates was 1,197 pounds. The result surprised Galton and it surprises other people who hear the story, too.

Goldstein and Kestenbaum decided to replicate the experiment by visiting a fair, weighing a cow, posting a picture of the cow online (next to a photo of Goldstein that shared his weight), and asking people to estimate the cow’s weight.

More than 17,000 people responded.

After removing outliers, the average estimate of the cow’s weight came in at 1,287 pounds. The cow weighed 1,355 pounds.

How can a group of people, few of whom knew anything about cows, get so close to a correct answer? The key is that each guess is made independently.

Apparently, the wisdom of the crowd is found in thinking independently, together.

This article was provided by Peterson Wealth Management. For more information, please call 775-423-8007 or visit PetersonWM.com.