President Trump’s talk on tariffs has the potential to start a trade war. Certainly there will be lots of noise, as is usual with Trump, and in our analysis, the probability of a trade war with dire consequences is not high.
But it is simply prudent to take protective steps. Let us first explore with a chart, and then I will share the names of 10 popular stocks that would be at risk if there is a trade war.
Read: Here’s why the stock market is taking the Trump tariffs so hard
Chart
Please click here for the annotated chart of S&P 500 ETF SPY, +0.52% Similar conclusions can be drawn from the charts of Dow Jones Industrial Average DJIA, -0.29% DJIA ETF DIA, -0.26% and the Nasdaq 100 ETF QQQ, +0.92% Please note the following from the chart:
• The most important observation from the chart is that the VUD indicator was consistently orange. The VUD indicator is the most sensitive indicator of supply and demand in real time. When demand for stocks is higher than the supply in real time, it is bullish and the indicator is green. When the supply of stocks exceeds demand in real time, the indictor is orange. The indicator has been orange, showing persistent net selling.
• The Arora Report warned investors of the potential trade war in the Morning Capsule that is made available to subscribers before the market opens. We wrote well before the news of tariffs hit: “Trump is set to announce tariffs on steel and aluminum. The rumor is that he will impose harsh duties of 25% on steel and 10% on aluminum from all countries. We will keep a close watch to see if it starts a trade war. If it does, we will need to make changes to our portfolios. The key will be to get ahead of the crowd.”
• The chart shows that, hours later, the news of tariffs hit.
• The market fell hard on the news.
• The chart shows the timing of the Arora call to increase cash and hedges by specified amounts out of abundance of caution. Our philosophy is that return of capital is more important than return on capital.
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Video: How we got here: A history of U.S. steel wars before Trump
10 stocks
The Arora Report designed a screen to filter out stocks based on two factors. The first is to find companies whose earnings may take a big hit if there is a trade war. The second is to highlight stocks vulnerability if market momentum wanes.
There are two common elements among these companies. First, they derive significant earnings from countries, such as China, that would be most likely to retaliate. Second, some of their products and services can be relatively easily substituted by non-U.S. companies.
Here’s the list:
• Apple AAPL, +0.69%
• Broadcom AVGO, +3.11%
• Boeing BA, -1.44%
• Caterpillar CAT, -2.56%
• 3M MMM, -0.42%
• Nike NKE, -0.35%
• Nvidia NVDA, +1.86%
• Skyworks Solutions SWKS, +2.39%
• Wynn Resorts WYNN, -0.22%
• United Technologies UTX, -0.28%
Popular stocks such as Google GOOG, +0.88% GOOGL, +1.19% Facebook FB, +0.39% Amazon AMZN, +0.46% Microsoft MSFT, +0.22% Netflix NFLX, +3.67% Intel INTC, +2.38% and AMD AMD, -0.76% are less vulnerable compared with the stocks listed above.
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. All recommended positions are reviewed daily at The Arora Report. Nigam Arora is an investor, engineer and nuclear physicist by background, and has founded two Inc. 500 fastest-growing companies.