Trade War Intensifies: What Investors Should Watch in June

The status of U.S. trade deals with China and Mexico are likely to dominate the stock market in June. Here's what you need to know.


Welcome to our monthly stock market outlook, where we preview what the pros will be monitoring and what everyday investors should know. Knowing what’s happening in the market can make you a smarter investor and help inform your long-term strategy.

We can sum up in one word what investors will be monitoring in June: trade.

The status of trade negotiations between the U.S. and China was to blame for much of the market’s bumpiness in May. Now, questions about trade with Mexico are coming into play, after President Donald Trump made a surprise announcement on Twitter Thursday evening that the U.S. will impose a 5% tariff on all Mexican imports starting June 10.

By midday on the last trading day of May, the S&P 500 was down 6.6% for the month, setting up for the worst month of returns this year—and worst May since 2010. But even with that rough patch, the benchmark index is still up almost 10% year to date. Investors in it for the long haul shouldn’t worry so much about these short-term market disruptions, since the market has always bounced back in the past.

Still, trade has the potential to influence market moves during June. Here’s what to know:

Ongoing trade talks and new tariffs will continue moving markets

What’s happening:

The status of trade talks between the U.S. and China dominated much of the market-related news in May. There were meetings. There were tweets. There were signs of progress—and setbacks that led both countries to raise tariffs on each other’s goods.

But there’s still no deal—so expect trade talks to be a big market theme into June (and possibly beyond), says Ernie Cecilia, senior vice president and chief investment officer at Bryn Mawr Trust Co.

“The issue of trade, both with China and the rest of the world, is the most significant issue for the market,” Cecilia says.

Trump followed up in late May with a new declaration: The U.S. will impose a 5% tariff on all Mexican imports starting June 10, which could rise to 25% in October unless Mexico takes action to “reduce or eliminate the number of illegal aliens” coming into the U.S.

Why trade matters so much:

Investors hate uncertainty, but they love to try to predict the future. So they care how a prolonged trade spat will affect U.S. corporations and consumers in some of the following ways:

  • What’s the trade-related impact on corporate earnings, or how profitable publicly traded companies are, and will there be a slowdown, especially for those that do a lot of business with China or Mexico?
  • Will the pace of U.S. economic activity slow, especially if higher prices (also known as inflation) cause consumers to pull back on their spending?
  • Will the Federal Reserve change its interest-rate decisions as a result of the above?

Even with the bumpiness of the past month, the stock market hasn’t been as “painfully impacted” as some people were predicting, says Mark Hackett, chief of investment research at Nationwide. What’s more, after such a strong surge from late-December through April, when the S&P 500 was up 25%, he argues “the market just needed to take a breather.”

But if the U.S. and China continue to retaliate against each other—by increasing tariffs on more goods, for example—that may begin to show up in economic reports. Meanwhile, investors are waiting for more details about Trump’s trade threat against Mexico.

What trade talks mean for you:

You could feel the pain of this trade spat in a very tangible way: The latest tariffs on Chinese imports will cost the typical American household $831 annually since the higher costs for businesses are expected to be passed onto consumers in the form of higher prices on products they buy, according to a report from the New York Federal Reserve Bank. Tariffs on Mexico likely will add to that tab, too, especially because the U.S. imports autos and a lot of food items from its southern neighbor.

And as an investor, you’re likely to see more market choppiness ahead related to the following:

  • Scheduled tariff increases. On June 1, China plans to raise tariffs on $60 billion of U.S. goods to as high as 25%. It’s a move in retaliation for the U.S. raising tariffs on $200 billion worth of goods from China. Then on June 5, the U.S. will implement a 5% tariff on all imports from Mexico.
  • The G20 summit. President Donald Trump has said he plans to meet with Chinese President Xi Jinping at the upcoming meeting of world leaders, planned for June 28-29.

But it’s important to keep perspective—and avoid making a knee-jerk decision you could later regret.

Daily declines of at least 1% for the S&P 500, which we’ve seen a handful of in the past month, are fairly common: Such moves happened in almost 14% of trading days since 2000, according to data analyzed by Grow. Daily gains of at least 1% happen just as frequently. Meanwhile, sell-offs of 5% happen about three times a year on average, according to figures from LPL Financial.

“Don’t react to headlines if you’re investing for the long-run,” Hackett says. “That’s more important than ever, with the potential for whipsaw from negotiations happening in the public.”

Fed officials could shift their policy to cut interest rates

What’s happening:

In June, investors will hear more from the Federal Reserve. The central bank is tasked with keeping our economy healthy. It does so, in part, by setting a benchmark interest rate called the federal funds rate. That influences the rates banks charge you on products like credit cards, auto loans, or mortgages.

Investors increasingly think the Fed could cut rates. One of the latest signs comes from a closely watched indicator called the yield curve, which measures the difference in interest rates for two bonds with different maturity dates.

On news of the Mexico tariffs, the 10-year Treasury yield—which already had been declining in May—fell to the lowest level since 2017. The 10-year Treasury yield now is lower than the three-month Treasury yield, which is what’s known as an inverted yield curve. That sign of slowing economic growth could put added pressure on the Fed to make changes.

This month, investors will be monitoring:

  • The so-called Beige Book: Eight times a year, the Fed compiles this report on current economic conditions. The next one is scheduled for release on June 5 and could show how the economy is doing, especially amid questions about whether another recession is imminent.
  • The Federal Open Market Committee, which decides on interest rate changes, convenes on June 18 and 19. Investors don’t expect any rate change at this meeting, but are watching for any sign of a policy shift in coming months.

Why Fed policy matters:

Fed policymakers have made it clear they’re committed to remaining “patient” and that no interest rate changes are coming “for some time.” But investors aren’t so convinced, and they’re trying to predict the next move by central bankers.

President Trump wants the Fed to cut rates, and investors increasingly believe that’s plausible. They’re betting there’s about a 90% likelihood the central bank will reduce interest rates by December. If this happens, it’ll be significant because central bankers haven’t cut rates since 2008—and it’s a move they usually make to stimulate the economy.

What Fed policy means to you:

Investors will scrutinize the Fed’s statement after its June meeting, looking for any wording tweaks that suggest the next move is likely to be a cut rather than an increase, Hackett says. “People are trying to read the tea leaves right now.”

When policymakers eventually do shift their strategy, or signal changes are coming, you can expect investors to react. And then there’s the impact any such changes to interest rates will have on your financial life. Lower rates mean it’s a better time to get a loan, but will be worse for the amount you earn in your savings account.

But the Fed appears to be on hold for now, so Cecilia doesn’t anticipate any surprises this month. “We still think it’s a very favorable market for investors,” he adds.

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