Trump's Trade Battle Commences: Insights for Investors on How to Profit
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Title: Ride the Tariff Rollercoaster: Here's How Smart Investors Are Seizing Opportunities
Who'da thunk it? President Trump's tariff threats have transformed from a bunch of hot air into a bona fide trade war with our nearest and dearest trade pals – Canada, Mexico, and China.
Last Tuesday, the administration slapped a 25% duty on all imports from Mexico, imposed 25% tariffs on non-energy goods from Canada, with a 10% rate for energy products, and upped the tariff on goods from China from 10% to 20%. Tariffs on aluminum and steel imports, plus ag products and foreign cars aren't far behind, along with plans to match tariffs from other countries. But hold your horses, old chap! A few days later, Trump paused some of the tariffs against Mexico and Canada until April 2.
While some cabinet members are trying to dress this up as a negotiating tactic, ol' Trump ain't budging; he even acknowledged "a little disturbance" and "an adjustment period" for the economy in his address to Congress last week.
Naturally, investors are feeling a tad anxiety-stricken about the economic impact. In two days, the S&P 500 (^GSPC -1.94%) plummeted a total of 3%, wiping out all of its post-election gains.
Already, there's enough economic data to suggest the tariff threat is taking a toll on growth. On Wednesday, ADP reported that private employers added a paltry 77,000 jobs in February, far below expectations, and the February ISM manufacturing survey hinted at price hikes and pauses in orders due to the tariff threat.
The future of these tariffs is vague, but one thing's for certain – the volatility surrounding them isn't going anywhere – and for investors, that means opportunities.
Investing Smarter, Not Harder
The tariffs could editorialize the U.S. economy, potentially hurling us into a recession. Trump might backtrack on them in response to negotiations or the economy could recover. Here's the kicker: it's tough to predict, but falling stock prices mean attractive bargains on shares unaffected by tariffs over the long haul, regardless of short-term hiccups.
Translation: it's time to jot down a "watch list" for stocks you'd like to snap up if the price drops.
Take, for example, Cava Group (CAVA -4.80%), the hot Mediterranean fast-casual chain raking in profits and expanding rapidly. Cava stock plummeted 11.5% last week and is down 44% from its peak a few months ago, despite reporting stellar fourth-quarter earnings earlier this month.
Another intriguing pick? Nvidia (NVDA -4.64%), a company boasting competitive advantages that could outlast a trade war. The stock has taken a nosedive, roughly 25% from its recent peak, partly due to concerns about cooled global economic growth caused by a trade war. With this pullback, Nvidia stock now trades at a forward P/E ratio of just 26, on par with the S&P 500.
Similarly, Taiwan Semiconductor Manufacturing (TSM -3.70%), the world's biggest chipmaker, offers a solid buy at its current P/E ratio of 27, especially after announcing an extra $100 billion investment in new U.S. foundries, shielding it from some tariff disruption.
President Trump even cheered recent interest rate drops in his address to Congress, and economic uncertainty could push Treasury yields lower. This could boost dividend stocks, like utilities such as Dominion Energy or low-risk Realty Income REITs.
Long Game, Short Worries
Remember, traders: the tariffs are a fluid situation, and things could change in the blink of an eye. Trump may continue wielding trade policy like a cudgel, but it's risky to forecast the specifics, like winners and losers, given the rapid pace of news. Investors are better off focusing on the long-term opportunity here and scooping up high-quality stocks while they're discounted.
Over the long haul, those companies are unlikely to be affected by tariffs, and they should sail through any short-term squalls from the trade war.
- The ongoing tariff tension, with President Trump increasing tariffs on goods from China, Mexico, and Canada, has investors concerned about the economic impact, leading to a rise in anxiety and a decline in the S&P 500 by 3%.
- Despite the uncertainty, some investors see this as an opportunity, as falling stock prices present the possibility of attractive long-term bargains, regardless of short-term volatility.
- For instance, Cava Group, a fast-casual chain, has seen a significant drop in its stock price (11.5% last week and 44% from its peak) despite reporting strong fourth-quarter earnings, making it an intriguing potential buy.
- Similarly, Nvidia, a company with competitive advantages that could outlast a trade war, has experienced a nosedive in its stock price (25% from its recent peak), but now trades at a forward P/E ratio of just 26, similar to the S&P 500, making it a potential long-term investment opportunity.