Sector ETFs To Watch Out For Until Phase-2 Trade Deal

While the United States and China are set to sign the phase-one trade deal, worries over existing tariffs have taken centerstage. The phase-one trade deal announced in the fourth quarter of 2019 witnessed a suspension in new tariffs on time.com .

However, the United States has kept 25% tariffs on $250 billion of other Chinese goods in place. Also, market watchers are of the view that After a Solid 2019, 5 China ETFs to Keep Rallying in 2020 ).

Against this backdrop, we highlight a few sector ETFs that should be watched closely.

Consumer

U.S. companies have S&P Global (NYSE:SPGI) .

Companies normally try to pass on some cost escalation to their consumers. This in turn pushes up inflation. With a major section of tariffs still in place, iShares U.S. Consumer Services ETF IYC should be tracked closely.

Energy

Investors need to watch the progression in the sector. While the phase-one trade deal may goad China to import more U.S. oil, Donald Trump’s levy of tariff on steel and aluminum imports is a pain for U.S. oil pipeline companies as it pushed up their raw material prices.

U.S. energy companies have about 14% exposure to China. Notably, following President Trump’s March 22, 2018 signing of an executive memorandum to impose regulatory tariffs, company-level probability of default (PD) for the U.S. energy sector jumped XLE and Alerian MLP ETF (F:AMLP) should be watched closely.

Auto

Both steel and aluminum are vital to the production of cars and trucks sold in America and would considerably push up the sale prices of those vehicles. U.S. auto companies earn about 12% revenues from China. China initially increased the tariffs on U.S.-made automobile imports from as a goodwill gesture .

Now, with Washington trying to make China buy more cars under the phase-one trade deal, First Trust NASDAQ Global Auto Index Fund (Ride on Tesla's Hottest Run With These ETFs ).

Homebuilders

In any case, the sector is guilty of higher home prices. With several Bet on Favorite Sector ETFs & Stocks This Earnings Season ).

Industrials & Materials

This area has the most to do with trade tensions as a huge set of industrial products, materials and chemicals are still facing inflated tariffs. This could keep funds like Industrial Select Sector SPDR Fund XLB in an edgy position till the U.S. presidential election this year.

Tech Hardware & Semicoductors

Tech companies that have extensive trade relations with China would be at high risk of falling prey to the trade war. In fact, XTH should thus be followed carefully.

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Along with tech, there are semiconductors, which probably have “the highest revenue exposure to China at SMH may continue to face troubles if there is a flare-up in tensions.

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Written By: Zacks Investment Research