Buy 5 Low-Beta Stocks Ahead Of Impending Market Volatility

Wall Street suffered a setback on the first trading day of December after completing an impressive November. On Dec 2, the three major stock exchanges — the Dow, the S&P 500 and the Nasdaq Composite — declined 0.9%, 0.8% and 1.1%, respectively.

Uncertainty about an interim trade deal with China and renewed tariff war with Latin American and European countries pushed indexes in the negative territory. Market volatility is likely to stay in the near term and investors should be prepared for that.

No Abatement in U.S.-China Trade Conflict

The more than 18-month old trade war between the United States and China is showing no signs of ending so far. After imposing tariffs and counter tariffs in 2018, the two countries tried to reach an amicable solution from the beginning of 2019. The talks however abruptly ended in May after President Donald Trump accused China of back tracking on its earlier commitments.

However, trade negotiation renewed in July. On Oct 11, President Trump said that both sides will sign a phase-one deal by mid-November. However, nothing concrete has appeared to date. The Trump administration wants China to substantially increase agricultural imports with firm commitments on protection of U.S. intellectual properties and abrogation of forced technology transfer. On the other hand, China wants U.S. tariffs on Chinese goods to be removed first.

Investors are keenly watching trade-related developments as the Dec 15 deadline is approaching. President Trump set this deadline for signing the phase-one deal failing which his government will implement a fresh round of 15% tariffs on $160 billion of Chinese goods mostly used as inputs for consumer goods. Moreover, on Dec 2, U.S. Commerce Secretary Wilbur Ross said that the U.S. government may also hike tariff rate on $250 billion of Chinese goods, which are already under the 25% tax bracket.

Meanwhile, diplomatic relations between the two largest trading nations deteriorated on Nov 27 after President Trump signed two bills supporting Hong Kong protesters, despite China’s repeated objections. Several industry watchers believe that a partial trade deal, if signed, will not materialized before late December or may be next year.

More Tariff Wars

On Dec 2, President Trump said that he will restore tariffs on U.S. steel and aluminum imports from Brazil and Argentina effective immediately. The U.S. government implemented 25% tariff on imported steel and 10% duty on imported aluminum on Mar 1, 2018.

According to Trump, “Brazil and Argentina have been presiding over a massive devaluation of their currencies, which is not good for our farmers.” Trump also insisted that the Fed should prevent countries from gaining an economic advantage by devaluing their currencies.

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The U.S. government has also decided to impose retaliatory tariffs on France since the latter imposed digital tax, which the Trump administration believes will hurt business interest of U.S. tech behemoths. The U.S. government has proposed levying duties of up to 100% on $2.4 billion French products, including sparkling wine, cheese, and other goods.

Our Top Picks

U.S. stock markets are likely to remain choppy in the first half of December or maybe the full month unless there are some positives on the trade war front. At this juncture, it will be prudent to invest in low-beta (beta value less than 1 but greater than zero) stocks as these stocks will be less volatile than the broader market.

However, the selection process may be difficult. This is where our Zacks Investment Research

Written By: Zacks Investment Research