Trump’s Tariffs Hit Hard: Here's How to Trade the Action
While the market tries to sort it all out, here's the good news about this mess, and how investors can take advantage of it.
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President Trump has been warning about the imposition of tariffs for weeks, but the market viewed it as a negotiating tactic rather than a real danger. The thinking was that the tariff threat would bring concessions, and that would avoid actually putting them in place.
That assumption has proved incorrect, as Trump wasted no time in imposing tariffs on Canada, Mexico, and China. He states that the European Union is next, and this time, he is being taken seriously.
The tariffs are having a significant impact, as major investment banks like JP Morgan JPM and RBC are predicting a 5% slump in equities and a recession in Mexico.
Early on Monday morning:
-- The Nasdaq 100 is down around 1.5%, and the S&P 500 is trading down 1.4%.
-- Bitcoin IBIT is down 6% from the close on Friday and is trading around $95,000. Other cryptocurrencies are significantly lower.
-- Oil USO is trading up around 1.6%.
--The dollar UUP is trading up around 1%.
-- Bonds are higher and interest rates lower on increased concerns about economic slowing.
-- Automakers are hit hard, with General Motors GM down 6.5%.
--Chinese retailers such as PDD Holdings PDD, which operates Temu, are losing the exemption from tariffs for small packages shipped to the U.S.
The market ramifications are extremely broad, and it will take a while for the market to sort it all out. There is a good chance that some deals may be made quickly, but Trump has indicated that he is willing to suffer some short-term pain.
The good news about this mess is that it creates major mispricing in many stocks. Investors tend to sell first and ask questions later. When they sell indexes or index ETFs, every single stock in the ETF or index is sold as well. Early on Monday, 98 of the 101 stocks in the Nasdaq 100 QQQ are indicated lower because QQQ was being sold. There are actually quite a few stocks that may benefit or be untouched by the tariffs, but since they are part of the index, they are sold as well.
The same is true with all the other indexes as well. All 30 stocks in the DJIA are indicated lower, and only 27 of the 502 stocks in the S&P 500 are trading higher.
My plan is to watch for stocks that I favor that are being sold due to the ETF action that is not impacted by tariffs. The biotechnology sector, for example, is largely protected from tariffs, but it is indicated down 1.7% because it is being dumped with everything else.
There should be some fairly quick bounces, but there is a tremendous amount of uncertainty, which will keep most buyers on the sidelines. There just isn’t enough known right now for good support to form.
I’m not rushing to buy the open, but I will be closely tracking some key names and will make some small, incremental buys into weakness.
At the time of publication, Rev Shark had no positions in any securities mentioned.
