Savvy investors must think ahead to see what companies in their portfolios will be hurt by the latest round of President Donald Trump’s threatened Chinese tariffs.
It’s time to shift into more-defensive stocks, some strategists told Barron’s.
“In the context of a $21 trillion U.S. economy, an incremental 10% tariff on $300 billion of goods represents just $30 billion or a direct hit of about 0.14 percentage points to U.S. GDP,” wrote Keith Lerner, chief market strategist at SunTrust, in an email to Barron’s.
Retailers and tech companies like Apple (AAPL) plunged after Trump last week unveiled his tariff plan.
JPMorgan economist Joseph Lupton recently wrote that the market is signaling a nearly 50% chance of recession in the next year, Barron’s warned.
“Almost anything that touches China has been hurt in the selloff. Casino stocks are vulnerable to changes in rules in Chinese-controlled Macau. Luxury-goods sellers like Tapestry would be hurt if they have less access to Chinese shoppers or it that country’s economy slows further,” Barron’s explained.
Stifel’s head equity strategist, Barry Bannister, expects defensive sectors to outperform cyclicals in the near term. "That means investors should consider consumer staples, health care, utilities, and real-estate stocks,” Barrons explained.
Wells Fargo analyst Christopher Harvey urged investors to “be respectful of the selloff — but not fearful.”
“With everyone running for cash & canned goods in this downdraft, we think Food, Beverage & Tobacco names are a solid lower risk play,” he wrote. “In our model portfolio, we hold Mondelez (MDLZ), Altria (MO) and Coca-Cola (KO).”
For his part, Trump dismissed fears of a protracted trade war with China on Tuesday despite a warning from Beijing that labeling it a currency manipulator would have severe consequences for the global financial order.
Trump, who announced last week he would slap a 10% tariff on a further $300 billion in Chinese imports starting on Sept. 1, tweeted that “massive amounts of money from China and other parts of the world” were pouring into the U.S. economy.
While Trump played down the prospect that the trade dispute could be drawn out, St. Louis Federal Reserve Bank President James Bullard said the U.S. central bank may be stuck with a volatile global trade environment for years.
“I think of trade regime uncertainty as simply being high in the current environment,” Bullard said at a National Economists Club luncheon. “I do not expect this uncertainty to dissipate in the quarters and years ahead.”
The U.S. Treasury Department said on Monday it had determined for the first time since 1994 that Beijing was manipulating its currency.
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