A handful of headlines drove the Dow Jones down by as much as 500 points. The apparent cause? Banks, tariffs, and political woes in Italy.

So what does this all have to do with your portfolio?

Let’s start with the news first.

Bank losses

JP Morgan and Morgan Stanley both saw their share values fall on Tuesday, dragging many other stocks down with them.

Morgan Stanley shares fell by more than 6% after an executive said that the company’s wealth management division was looking at challenging business conditions in the second quarter. The comments spooked investors enough to send the share prices spiraling for its worst day in two years.

JP Morgan’s shares also fell after remarks from an executive, as the company’s co-president Daniel Pinto said that trading revenues were expected to be flat in the second quarter.

Other banks had a bad day as well. Goldman Sachs, Citigroup, and Bank of America shares all fell by more than 3%.

(More) Chinese tariffs and North Korea

While the on-again, off-again White House summit with North Korea appears to be on again, the biggest ripples coming out of Washington D.C. had to do with additional tariffs levied on China.

The White House announced that it will release a list of $50 billion in Chinese goods in June that will be subject to a 25% tariff. The Trump administration also said it would be implementing investment and export restrictions in an attempt to curb theft of intellectual property theft from U.S. companies.

The announcement follows previous rounds of tug-of-war with China regarding trade, which also caused the markets to tank.

Italy: The next Greece?

The Italian economy continues to struggle a decade after the Great Recession, and the country’s still wracked with debt. Fears are that Italy could enter a deep recession, much like what happened to Greece.

What has the markets even more on-edge is the fact that Italy’s economy is ten times bigger than Greece’s, and Italy’s turbulent political environment that hasn’t produced a plan to right the ship.

Italy is the third-largest economy in the European Union, and its economic troubles could create a backlash affecting the entire eurozone and markets around the world.

Other fears: Will Italy exit the EU? Analysts worry about another Brexit situation and its effect on the global economy.

What should you do?

Take your finger off the “sell” button. It’s easy to start panicking when the numbers seem to be going the wrong way.

When you sell, you’re effectively locking in any gain or loss you’ve made. Stay strong, don’t let your jitters get the best of you.

Take a deep breath and take the long view. On average, if you look at the last 100 years, markets have grown a little over 8% a year. Going forward, many experts predict a long-term expected annual return for US large cap stocks (i.e., the S&P 500) of 5.9%.”

Here’s the hard truth: There are years where the market is strong and some years where the market struggles. You can’t sweat day to day market ups and downs when you’re investing for a lifetime.

We have a saying at Stash. It’s all about “time in the market, not trying to time the market.”

Stay strong. Stay the course. Stay diversified. It’s the Stash Way.

The post Why Did the Market Drop 500 Points? appeared first on Stash Learn.

The trade deficit is one one of the rationales offered by the Trump administration for possibly imposing stiff tariffs on a wide array of Chinese exports.

What is the trade deficit?

In simplest terms, a trade deficit, sometimes referred to as a trade gap or an account deficit, is when a country imports more than it exports, which can lead to all kinds of economic issues.

But what does the trade have to do with billions of dollars worth of potential tariffs on Chinese goods, such as steel and aluminum?

We’ll break it down for you.

Let’s talk trade

We live in a global economy. Nations import and export their goods, to and from each other all the time. In fact the global economy for exports is worth a staggering $16 trillion, according to the World Trade Organization.

All countries have what’s called a trade balance–that’s the sum of what it imports and what it exports. If a country imports more than it exports, it has a negative trade balance, or deficit. If it exports more than it imports, it has a positive trade balance, or surplus.

Why do countries trade?

Think of it this way: Companies in a particular country produce goods they want to sell. There’s a domestic market for sales, but there are also foreign markets–other countries might want to buy what another country produces. And that’s particularly the case if that country doesn’t manufacture or grow those things itself.

The U.S., with its rich farmland in the Midwest and elsewhere, is one of the largest exporters of wheat, for example. And although the situation has changed dramatically in recent years,  the U.S. used to import much of its petroleum from the oil-rich Middle East, when it seemed like our own supplies were limited.

Getting it cheaper from someplace else

But it’s not always the case that a country imports a particular good because it doesn’t have it, or produce it domestically. Sometimes wealthy countries such as the U.S. purchase exports simply because the goods may be cheaper than what they can produce themselves.

For decades that’s been the case with the U.S. and China, and other Asian countries, where the price to produce common items from clothing to electronics is often much less expensive than the cost to produce the same items domestically.

In fact, China’s access to cheap labor and sophisticated manufacturing has made it the biggest exporter in the world.

Cheap products are great for U.S. consumers who benefit from the reduced prices. On the other hand they may not be so good for U.S. workers, if the jobs producing those items are all based overseas.

This is the theory of the Trump administration, which has said our trade deficit is killing jobs at home.

Surplus vs deficit

If a country imports more than it exports, that country runs what’s called a trade or account deficit. That’s in contrast to an account surplus, if a country exports more than it imports.

Simply put, a surplus is more appealing than a deficit, because it puts a country’s economy in a stronger position.

Here’s why: It actually costs us money to import more than we export. In order to buy all those goods from overseas, U.S. companies exchange dollars for the local currency of the country manufacturing what we buy.

Here’s where it gets a bit complicated.

That means U.S. dollars accumulate in central banks overseas, which typically use those dollars to purchase our Treasury debt, since it pays interest.

But Treasuries are a form of debt. So those export dollars wind up as loans to the U.S. government, essentially increasing national debt.

What does this have to do with the U.S. and China?

Currently, the U.S. exports about $2.2 trillion of goods and services annually, and imports about $2.7 trillion, according to International Trade Administration. That means we have a trade deficit of roughly $500 billion annually.

Most of that gap, or $375 billion, is with one country–China. And that’s a prime reason why President Trump has called for the tariffs.

His hope, based on the theories of his economic advisors, is that tariffs will reduce the trade deficit by making Chinese products more expensive for the U.S. to import.

That in turn, Trump and his advisors have suggested, could increase U.S. manufacturing and jobs.

Will it work?

Time will tell. Tariffs are not a one-way street. China has threatened to retaliate with billions of dollars worth of its own tariffs, which could give U.S. manufacturers and exporters a hard time.

Aerospace manufacturer Boeing, for example, has voiced concerns recently that a trade war could harm its U.S. business.

The post What’s a Trade Deficit? appeared first on Stash Learn.

That’s a leading reason why this week, after President Trump announced new tariffs on steel and aluminum, major indexes fell in reaction to the news.

The Dow Jones Industrial Average dropped 420 points on Thursday, and was down more than 300 points in late morning trading Friday. Similarly, the S&P 500 and the tech-heavy Nasdaq each fell more than 1% on Thursday, and both indexes continued their slide on Friday in morning trading.

Fears of an extended trade war–where other countries could retaliate by slapping tariffs of their own on U.S.-made steel and aluminum, rattled investors and the larger markets.

So what are tariffs and trade wars, and how do they relate to the stock market?

Let’s break it down.

What’s a tariff?

Trump has proposed putting a tariff of 25% on foreign steel, and one of 10% on aluminum imports, according to reports.

A tariff, sometimes called a duty,  is a tax typically imposed by one nation on another’s imports. (In some cases, tariffs can be levied on exports.) The tariff is generally calculated as percentage of the import’s total value, including freight and insurance charges.

In principle, governments impose tariffs to make their own products more competitive and affordable, and to generate revenues.

A trade war is when countries engage in a tit for tat over tariffs.

Think of it this way: The additional taxes imposed will make it more expensive for U.S. companies to buy foreign steel, so they may instead turn to steel made by U.S.-based manufacturers.  And if they do buy the more expensive foreign product, the tariff adds to U.S. coffers.

What’s a trade war?

A trade war is when countries engage in a tit-for-tat over tariffs. In response to U.S. tariffs on foreign steel and aluminum, countries such as China, the largest steel producer in the world, could impose tariffs of their own on U.S. steel, as well as our other exports.

That could reduce demand for U.S. exports, which could dent our economy.

In fact, leaders from various countries and trading blocs have already weighed in, suggesting they might do just that.

“The United States must know that if these unilateral decisions were to be maintained and confirmed, they would lead to a strong, coordinated and united answer from the European Union,” Bruno Le Maire, France’s minister of finance, told USA Today.

Chinese leaders have reportedly said they’d do what they need to protect their own markets, and have hinted they might retaliate further by putting tariffs on other U.S. products, such as our exports of soybeans, which totaled about $12.4 billion in 2017, according to reports.

Yet other countries from Canada to Mexico have also voiced concerns.

“Should restrictions be imposed on Canadian steel and aluminum products, Canada will take responsive measures to defend its trade interests and workers,” Foreign Minister Chrystia Freeland told Reuters in a statement.

Canada is the largest supplier of aluminum and steel to the U.S., and also purchases more than half of its steel from the U.S.

Steel and aluminum are in everything

Soda and beer cans, electrical components for smartphones, automobiles, building construction materials, and paper clips–you can’t go far without encountering aluminum and steel. Both materials are in most everything we use every day.

And executives from some of the leading business councils in the U.S. weighed in about the potential impact of the new tariffs, with some expressing fears that the duties will increase the costs of manufacturing.

“President Trump shouldn’’t undercut his own goal of helping U.S. manufacturers “win” again by imposing counterproductive tariffs on steel imports,” The Association of Equipment Manufacturers said in a statement.

Similarly, Molly Day, vice president of the National Small Business Association, told CNBC:

“This kind of tariff, while seemingly targeted, could have widespread implications and likely will result in increased prices of many goods,” said Day.

Why did the stock market fall?

Perhaps the most potent force in the stock market in recent weeks has been the fear of inflation. Signs of inflation caused major indexes to experience corrections in February, resulting in losses of at least 10%.

And the tariffs could potentially increase costs for U.S. businesses, according to reports, which could cause an uptick in inflation, as businesses raise prices to cope. When inflation rises, the Federal Reserve, the nation’s central bank responsible for setting monetary policy, usually responds by increasing interest rates to combat it.

Higher interest rates, in turn, can make it more expensive for businesses to operate, which can put further pressure on stock prices.

More background

Trump ran on an “America First” platform, which aims to advance the interests of U.S. manufacturers, in part by withdrawing from trade treaties.

Over the last 20 years, the U.S. has entered into numerous trade treaties, the most famous of which is perhaps the North American Free Trade Agreement (NAFTA). These treaties, which are complex multilateral agreements that favor negotiations between all countries that sign, have reduced the threat of trade wars by eliminating many tariffs on exported and imported products.

Trump has argued such agreements have flooded the U.S. with cheaper foreign-made goods, which make it difficult for U.S. manufacturers to compete.

And this isn’t the first time the Trump administration has moved to impose tariffs. In January, it approved steep tariffs on imported solar panels and washing machines.

The move followed a push by domestic manufacturers of both products to get U.S. trade officials to impose taxes on imports, as a way to protect them from international competitors.

China is the largest manufacturer of solar components in the world, and its prices are generally far cheaper than those for American products. American manufacturers of solar products have said a flood of imports from China has hampered their ability to manufacture.

The post Trump’s Tariffs on Aluminum and Steel, What’s the Big Deal? appeared first on Stash Learn.

China’s Internet conglomerate Tencent Holdings overtook Facebook by size on Tuesday, with a market capitalization of $534.5 billion, compared to Facebook’s $519 billion, according to reports.

Tencent’s share price has surged following strong third quarter earnings, reported last week, with profits increasing nearly 70% in the quarter.

What’s Tencent?

Tencent is a tech conglomerate offering Internet services, an online advertising platform, and mobile games, among other things. It’s perhaps best-known, however, for its WeChat messaging service, which has close to 1 billion users who send about 38 billion messages each day, according to Reuters.

Market cap, is the total dollar value of a company’s shares. It’s often used to evaluate a company’s overall size

Tencent was founded by entrepreneur Ma Huateng in 1998. It has invested in numerous U.S. startups, including Snap and Tesla. Ma has an estimated net worth of $42 billion, according to CNN.

Earlier this month, Tencent caused a stir when it snapped up 12% of Snap after the U.S.-based messaging app company reported less than stellar earnings.

Tencent is now the fifth-largest publicly traded company in the world, according to Reuters. It ranks behind Apple, whose market capitalization of $873 billion makes it the most valuable company in the world, as well as Google parent company Alphabet, Microsoft, and Amazon.

[infogram id=”5624b090-27a2-48c8-b10f-fac165874e59″ prefix=”qmT” format=”interactive” title=”Tencent Chart”]

Largest publicly traded companies by market cap.

What is a market capitalization?

A market capitalization, or market cap, is the total dollar value of a company’s shares. It’s often used to evaluate a company’s overall size.

Market cap is determined using a simple calculation: You multiply the company’s share price by the number of shares available for sale. In this case, Tencent’s share price was about 440 Hong Kong dollars. It has about 1 billion shares outstanding.

That gives Tencent a market cap of roughly 4.17 trillion Hong Kong dollars, or $534.5 billion, according to CNBC. It’s the first Chinese company to reach the $500 billion market cap mark, beating out rival Alibaba, the Chinese eCommerce company.

The post China Social Media Giant Tencent is Now More Valuable Than Facebook appeared first on Stash Learn.

On Sunday, roughly two million people in the Spanish region of Catalonia voted to separate from the rest of the nation and form its own country.

The vote was immediately declared unconstitutional by Spain’s top courts, and police moved quickly to squash protests by voters in favor of secession. The vote even prompted King Felipe VI of Spain, who usually stays quiet on political matters, to condemn the move to secede.

The vote in Catalonia would be roughly equivalent to a state like Texas voting to secede from the U.S., which from time to time it has seemed to consider doing.

Why does the vote in Catalonia matter?

Politics affects economies and stock markets. Following the Catalonia vote, something called the IBEX, which is roughly equivalent to the S&P 500 in the U.S. but contains 30 of the largest company stocks in Spain, fell about 3% on Monday.

The euro, the common currency of the European Union (a bloc of 28 countries, primarily in Western Europe), also reportedly fell 0.5% on Monday, the day after the vote.

Catalonia is responsible for roughly 20% of the country’s economy, and a quarter of the country’s exports

Spain has only recently emerged from a crushing, decade-long recession that has left nearly 20% of citizens there unemployed. Catalonia, a small region in the northeast of Spain, is an economic powerhouse, responsible for roughly 20% of the country’s economy, and a quarter of the country’s exports.

One of the country’s most vibrant cities, Barcelona, is located there. And while the rest of Spain has suffered from high jobless rates, its unemployment rate is reportedly lower at 13%.

Catalonia vote: Part of a trend

The Catalonia vote is part of wave of separatist and nationalist sentiment sweeping Europe.

Greece has toyed with the idea of leaving the European Union due to a debt crisis that began more than a decade ago. In 2016, Great Britain voted to leave the European Union in an event that has come to be known as Brexit.

The roots of the Catalonia vote are complex and longstanding. The region has its own language and culture, and was also key in the Spanish Civil War in the 1930s.

The post Catalonia’s Vote to Secede from Spain: What It All Means appeared first on Stash Learn.

Robotics and artificial intelligence are exciting new fields that are currently enabling machines to work alongside people in a variety of manufacturing industries including automotive and electronics production.

Robots and artificial intelligence will drive $15.7 trillion of global economic gains by 2030

Pretty soon, robots and other thinking machines will be helping everywhere, assisting in health care, energy production, even farming.  

Robots, robots, everywhere

A new study from consultancy PriceWaterhouseCoopers (PWC) about artificial intelligence predicts the world is on the cusp of enormous change, driven by robots and the next generation of thinking computers. The study forecasts enormous productivity gains for economies across the globe as robots and artificial intelligence enable greater efficiency.

The two countries expected to benefit most from advances in artificial intelligence are the United States and China, also the two largest economies in the world. But emerging markets have an opportunity to ramp up really fast.

Here are some highlights from the report:

Robots and artificial intelligence will drive $15.7 trillion of global economic gains by 2030. Roughly half of these gains will come from increases in productivity. The other half will come from increased consumer demand as products become more specialized and targeted to individual buyers.

While all economies in the world will experience the economic impact from smarter machines, China and the U.S. will experience 70% of the total GDP gains. PWC estimates the U.S. will see economic increases worth $3.7 trillion. China will see nearly twice as much economic gain, valued at $7 trillion.

Emerging market economies, or nations whose economies are still developing, stand to gain the most from robotics and artificial intelligence. Think of it this way: advanced economies like the U.S. already have extremely sophisticated systems in place for manufacturing, production, and delivery of services.

Developing nations have a huge opportunity to become market leaders by adopting artificial intelligence in processes more quickly.

The post Robots and Artificial Intelligence: It’s the Way of the World appeared first on Stash Learn.