Declining Global Trade Is a Key Risk for Investors

As of the end of February, world trade volumes had fallen four months in a row in terms of quarter-on-quarter growth. Global trade will likely have an ongoing impact on corporate earnings and remains one of our key macro risks to watch.

The chart shows the net contraction in world trade volumes that started in November 2018. The international trade balance measures the difference between the movement of merchandise trade leaving a country (exports) and entering a country (imports). This measure tracks the volume of the merchandise trade balance, illustrated here.

We believe that the Q1 earnings season reflects the deterioration in global trade activity, prompted largely by the US / China trade war that has recently escalated. S&P 500 companies in sectors most sensitive to world trade saw no change on average in their sales growth over Q1, while companies with a lower sensitivity enjoyed a 6% improvement on average. We expect this trend to continue to weigh on global corporate earnings as international trade tensions persist.

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