Investors are panicking on fears the trade war is back in a big way.
Euphoric investors that spent weeks cheering all-time highs are now running, fearful of sizable downside. All after President Trump threatened to escalate a trade war between the U.S. and China – destroying any hopes investors had for a resolution to the dispute.
Worse, should we fail at triple-top resistance dating back to early 2018, there are fears we could slip back to 23,500, or 3,000 points lower from where we were in May 2019.
In fact, in early May 2019, the President threatened to raise tariffs on imports from China from 10% to 25% after complaining that trade talks were moving along far too slowly.
In fact, at the time, he tweeted:
“For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday. 325 Billion Dollars of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!”
Some of the top sectors taking a hit on the unexpected news included technology and industrial companies. Qualcomm (QCOM) for example fell as much as 2% on the day. Apple (AAPL) was down as much as 2%, as well. Micron Technology (MU) fell 3%.
Industrial stocks like Caterpillar (CAT) were trimmed by 2.5%. Deere & Co. (DE) dropped 4%.
Even the Oracle of Omaha was fearful of what a trade war could mean.
“If we actually have a trade war, it would be bad for the whole world, and could be very bad, depending on the extent of the war,” Buffett said, adding: “There are times in negotiations when you talk tough. With some people in negotiations, the best technique is to act half crazy.”
However, we must also consider is that the latest move could push China farther away.
In fact, according to analysts at Maybank Kim Eng Research, “China will not want to negotiate with a gun pointing at their heads” and could counter, as noted by Vanity Fair.
Even Zhou Xiaoming, a former Ministry of Commerce official noted, “China isn’t likely to make concessions that the U.S. wants with a big stick hanging over its head. If the tariffs that Trump threatens are implemented on Friday, China has to respond.”
And that, folks, could derail the market’s all-time highs.
However, we can protect our portfolios by hedging for volatility with:
- iPath S&P 500 VIX Short-Term Futures (VXX)
- ProShares Ultra VIX Short-Term Futures (UVXY)
- VelocityShares Daily 2x VIX Short-Term ETN (TVIX)