Your Can’t Fail Trade War Portfolio Needs These Stocks
Investors threw a bit of a tariff tantrum to end a rocky week for the stock market.
The Dow dove nearly 300 points at Friday’s low before rebounding into the close. The catalyst of course was renewed trade tensions, as the Trump administration slapped another $50 billion in tariffs on imports from China. This on top of warnings to Beijing there would be more to come if China retaliates.
Of course China responded in kind, announcing 25% duties on a list of 659 U.S. imports worth, not coincidentally, $50 billion.
This simmering tit-for-tat trade spat is beginning to have a real impact on markets, and it’s not limited to stocks. Beijing’s tariffs on U.S. soybean exports to China could cost Iowa farmers $624 million.
As a result, volatility has soared in U.S. grain markets. Soybean prices have plunged 12% over the past few months.
Investors are getting increasingly nervous over the prospects of a full-blow trade war with China and our other trade partners. With trade wars no one wins.
That said, the fear seems overblown to me.
It seems more likely that Washington is taking these actions as an opening negotiating tactic to hammer out more favorable trade deals across the board.
And there’s good reason for that.
According to the World Trade Organization (WTO) average U.S. tariffs are just 3.5% now, compared with 5.2% in Europe and 9.9% in China.
But one bright spot that could distract investors from trade tensions is the very healthy corporate profit picture for U.S. companies. First quarter S&P 500 profits soared the most in nearly a decade, up 24% year over year.
Source: Bespoke Investment Group
But there’s more good news to come. As a result of the huge positive surprises last quarter from nearly every sector, Wall Street analysts have been busily raising estimates at a record rate.
The consensus view now calls for 20% earning growth for the current, second quarter of 2018, which draws to a close in just 2 weeks. They also estimate a 22.3% profit growth in Q3.
Now which sectors have the best profit growth prospects going forward?
Right now, analysts are most optimistic about tech, healthcare and energy. These industries earn “buy-ratings” from the analyst community on 60% of the stocks in the sector, compared to an average of 53% buys on S&P 500 stocks as a whole.
Not coincidentally, these three sectors also have some of the strongest earnings growth estimates in the coming quarters.
Especially energy, which is enjoying a stellar rebound while still undervalued.
S&P energy sector profits more than doubled in the first quarter, and I see more to come in Q2 and beyond.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch
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