This Week in Review | Tariff Tensions, US Dollar Weakness, China GDP

Transcript

Jessica Smith:

Hello, and welcome to This Week in Review. This weekly segment is designed to highlight a few important developments you may have missed this week, what they may mean for markets, and most importantly, the potential impact for investors. To stay up to date with our latest market insights, subscribe to our YouTube channel or visit FisherInvestments.com. Now, let's review what happened this week.

First, the return of tariff tensions.

Over the weekend, US President Donald Trump announced tariffs on eight European countries who opposed his push to purchase Greenland from Denmark. President Trump said 10% tariffs would start February 1st and increase to 25% on June 1st if no deal is reached. In response, the European Union said it was considering retaliatory tariffs on US goods as well as other potential countermeasures. However, on Wednesday, President Trump announced a tentative deal had been reached to avoid tariffs. We may continue to see uncertainty and developments around this topic for some time. As we detailed in a recent MarketMinder article, and as we saw play out in stocks this week, markets can be quick to register knee jerk reactions and worst case scenarios. But as time goes on, markets weigh how reality shapes up compared to those initial expectations, which can bring positive surprise. No one can predict how this story will evolve or how markets may react. Short-term market moves are never predictable, but as always, discipline remains important. While tensions could rise further, context is important. Our research shows the currently discussed Tariffs have a maximum impact in the billions of dollars. That's a huge figure for normal individuals, but tiny compared to the roughly $117 trillion scale of the global economy. And remember, tariff tensions aren't new for stocks. Markets dealt with plenty of similar tensions in 2025. And yet, global stocks still rose over 20% for the year. In other tariff news, the US Supreme Court is preparing a ruling on whether President Trump exceeded his authority when he enacted most of last year's tariffs. A ruling against the administration would likely require the government to refund billions of dollars in tariff revenue. But we'll need to wait for the court to reach a verdict to get clarity. Importantly for investors, stocks have been weighing the probabilities along the way. This reduces the chance for a negative surprise to materially impact stocks.

Next, US dollar weakness.

Volatility returned to the US dollar this week as investors reacted to tariff developments. Some are still worried that a weakening US dollar may signal declining confidence in the US economy and government debt. But to US, recent US dollar trends look more like normal currency volatility. Yes, the US dollar is near lows last seen in 2022, but it remains much stronger than during the 2010s Some worry this latest dollar dip alongside geopolitical tensions means the dollar is no longer a safe haven asset. However, the dollar's decline isn't as dramatic as it seems. Even now, the dollar sits at levels higher than during most of the 2009 to 2020 bull market. That was the longest bull market in history, and a weaker dollar didn't constrain stocks. So, we don't think the dollar's current levels, or even further weakening, would necessarily suggest a major issue either.

Finally, China's Q4 GDP report.

On Monday, China reported 4.5% year-over-year GDP growth for the fourth quarter. This is in line with expectations, but continues the trend of decelerating Chinese GDP seen throughout 2025. Growth was helped by a record $1.2 trillion trade surplus, as global demand for Chinese goods remains strong despite US tariffs. And while some might wish the US enjoyed such a large trade surplus, we see things differently. Large trade surpluses point to industrial overcapacity. While China's Q4 GDP report points to weak consumer demand and continued struggles in its real estate market, with other countries pushing back against China's flood of cheap exports, market observers point out China may struggle with more decelerating growth ahead. For long-term investors, what matters is that while China faces economic headwinds, it is still expected to contribute positively to global economic growth. This should benefit stocks and investors with a diversified long-term investment strategy.

That's it for this week.

Thanks for tuning in to This Week in Review. If you're looking for more insights, then don't miss our other series, three Things You Need to Know This Week, released every Monday. You can also visit Fisher Investments Comm any time for our latest thoughts on markets. Thanks again for joining us and don't forget to hit like and subscribe!