Reducing the trade deficit has been a goal for U.S. President Donald Trump, but on Wednesday, the Commerce Department reported that the trade deficit increased 12.5 percent in 2018, resulting in a 10-year high.
To end 2018, the trade deficit went 18.8 percent higher during the month of December, resulting in the final $621 billion gap. That figure represents the largest gap since 2008 and follows the $552.3 billion deficit in 2017.
The rise in the deficit comes as President Trump is looking to conclude trade negotiations with China. Trade talks have already moved past the initial March 1 deadline with the notion that the capital markets have already priced in a deal, resulting in sell-offs this week.
On Wednesday, the Dow Jones Industrial Average declined as much as 150 points and could finish with three losing sessions in a row. On Monday, the Dow fell over 200 points.
“There’s just a lot of good news priced in. We’ve had more than a year’s worth of gains already on the progress with China and the Fed (staying patient),” said Aaron Clark, portfolio manager at GW&K Investment Management. “It makes sense that we get a digestion period after such a strong rally. I think that’s what we’re seeing now.”
In the meantime, however, the markets will still be news-sensitive until a permanent trade deal materializes.
“Most of the big items that have driven the market over the past two months are done,” said Tom Martin, senior portfolio manager at Globalt. “The market is guessing there will be some sort of trade deal that will end the larger hostilities.”
“The news has people waiting; that’s what you’re seeing in the averages over the last several days,” Martin added.
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Federal Reserve Chairman Jerome Powell told a Senate committee last week that the economy is on solid footing, but potential dangers are looming, such as the year-end volatility experienced in 2018. Powell, however, assured that the central bank will respond accordingly should such dangers present themselves.
“While we view current economic conditions as healthy and the economic outlook as favorable, over the past few months we have seen some crosscurrents and conflicting signals,” Powell said in his prepared remarks to the Senate Committee on Banking, Housing and Urban Affairs. “Financial markets became more volatile toward year-end, and financial conditions are now less supportive of growth than they were earlier last year.”
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