INSUBCONTINENT EXCLUSIVE:
US technology and consumer discretionary stocks have been insulated from global trade tensions, but if another round of US tariffs on
Chinese goods goes into effect, even those high-flying sectors could come down to earth.
The United States and China have already imposed
tariffs on $50 billion worth of each other's goods
The White House has proposed tariffs on an additional $200 billion worth of Chinese imports, including furniture, handbags and some computer
US President Donald Trump has said he is prepared to move forward with levies on an additional $267 billion - in essence, all Chinese
imports into the United States.
The inclusion of consumer goods is a shift from previous rounds of US tariffs, which have primarily hit the
Shares of companies such as Boeing Co and Caterpillar Inc have risen and fallen in tandem with trade sentiment.
On Wednesday, the Trump
administration said that it invited Chinese officials to restart trade talks, which has been welcomed by Beijing
US stocks have perked up on the news, but that optimism could be fleeting.
"Investors in general are too predisposed to react too positively
to any signs of improvement in the situation," said Kristina Hooper, chief global market strategist at Invesco in New York
"I don't expect the (Trump) administration to back down."
Companies in the tech and consumer discretionary sectors have begun sounding alarm
A broad array of US industry groups, representing companies such as Microsoft Corp, Amazon.com Inc, Walmart Inc and Mattel Inc, has voiced
opposition to the new tariffs.
Even Apple Inc, whose stock has contributed heavily to the SP 500's gains, has warned that the proposed
tariffs would affect several of its products, including the Apple Watch and AirPods headphones, though it did not mention the iPhone.
In
part because of trade issues, shares of tech companies have gotten off to a rocky start in September
As of Thursday's close, the SP 500 tech sector had fallen 1.2 percent this month, versus a 0.1 percent rise for the SP 500 as a whole
SP 500 consumer discretionary stocks had risen 0.2 percent, less than the 2 percent advance in industrial stocks.
"The next round of
escalation really does impact the leadership of the market," said Lisa Shalett, head of investment and portfolio strategies at Morgan
Stanley Wealth Management.
In anticipation of heightened trade tensions, companies have built up inventory, which could have an adverse
effect on supply chains later on, Shalett said
Inventory pile-ups have already pushed down pricing in the semiconductor industry
The Philadelphia SE Semiconductor Index had fallen 2.8 percent in September as of Thursday's close
Consumer-oriented companies face a catch-22 in their response to tariffs
Those that compete on price, such as Walmart, will likely have to absorb the cost of levies, which will cut into their margins
But companies that pass costs onto consumers, as Apple has indicated it will do, risk dampening demand for their products
Invesco's Hooper pointed to washing machines as an example
Tariffs on steel and aluminum caused Whirlpool Corp to raise prices on its appliances, and its second-quarter earnings slumped as a
result.
To be sure, consumer electronics are flashier products than a washer-dryer set
And US tech companies can skirt some tariffs by shipping Chinese-made parts directly to other countries for assembly and then importing the
finished items into the United States, said Scott Yuschak, equity strategy analyst at SunTrust Advisory Services in Atlanta
The list of targeted items in the next round of tariffs excludes cell phones, for instance.
With such mitigating factors, many investors are
reluctant to make sweeping changes to their portfolios, though Morgan Stanley's Shalett has recommended a rotation into defensive sectors
Many are likely waiting for third-quarter earnings for more details on the impact of trade, said David Joy, chief market strategist at
Ameriprise Financial in Boston.
But further signs of escalation in the United States -China trade war could quickly raise the stakes for the
The final round of levies would include consumer electronic products imported from China
Some market watchers fear that China, which cannot match the United States in tit-for-tat tariffs, would respond by restricting US
companies' ability to sell products in the country.
"If you look at the broad base of technology, there isn't much impact at this point,"
said Daniel Morgan, portfolio manager at Synovus Trust Company in Atlanta
"But if you include the iPhone into tariffs, then that changes the whole game."
