China Retaliation to Trump Tariffs Keeps Inverse ETFs in Play, For Now

On Monday, the market received a few unexpected positive surprises with President Trump first delaying tariffs on Mexico and then Canada. That led equity futures to rebound on Monday night but that was short-lived as China retaliated to Trump tariffs that recently went into effect.

Those tariffs, which go into play on February 10, include a 15% on U.S. imports of coal and liquefied natural gas and 10% higher duties on crude oil, farm equipment and selected cars as well as new export controls on tungsten and other critical metals used in electronic, aviation and defense industries.

With several days to go until China’s tariffs go into effect, the next step will be to see if Trump ratchets up tariffs on China and what that brings or if this is a path to trade negotiations. What we need to remember is that Trump prefers to keep those across the table from him off balance, and that means we should be prepared for uncertainty and continued volatility in the market.

For that reason, we will keep the newly-added inverse ETFs in play that we added to the Portfolio on Monday morning. Should we see a deal struck with China and tariffs between China and the U.S. pushed off, we may opt to reduce the Portfolio’s exposure to these inverse ETFs to minimize their drag on the Portfolio.

Hanging in the air is Trump’s warning that tariffs on the European Union “would definitely happen.” That suggests we will most likely have another round of potential trade-tariff uncertainty to contend with before too long.

As we clear these known knowns and the uncertainty subsides, we’ll look to wind down the Portfolio’s exposure to these market-hedging, Portfolio-protecting inverse ETF positions.

Tuesday's Roadmap

Coming up on Tuesday we have the quarterly earnings call from NXP Semiconductor NXPI, and following Monday night’s earnings report, we’ll be interested in what it says about its mobile and communications infrastructure end markets.

We’ll also be looking into comments from CNH Industrial CNHI regarding its North American construction business and its outlook for non-residential construction. During its earnings call this morning, we’ll be looking for Cummins CMI to support the bullish data center outlook shared by Eaton ETN last week.

We’ll cap Tuesday off with quarterly results from Alphabet GOOGL, which is expected to deliver EPS of $2.13 on revenue of $96.67 billion, up 12% year over year. With the shares on a tear since late November, depending on what we hear from the company and see in its outlook we may need to revise our One rating.

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At the time of publication, TheStreet Pro Portfolio was long ETN and GOOGL.