US-China Work Out Trade Truce: 5 Top Winners
Zacks Investment Research | May 21, 2018 09:13PM ET
The United States and China have agreed to “substantially” lessen trade deficit following two days of negotiations. China promised to “significantly” purchase U.S. goods and services that soothed investors’ nerves to a fair extent.
Receding possibility of collateral damage from China trade war helped industrial, technology and energy stocks gain ground. Thus, investing in such stocks, for now, seems to be a wise choice.
What’s Powering the Markets?
Investors were perked up by Treasury Secretary Steven Mnuchin’s statement that the White House will suspend tariffs on $150 billion worth of Chinese goods. The Trump administration will continue to work on the deal between the economies to “put the trade war on hold.”
U.S. Trade Representative Robert Lighthizer, however, said that Washington might impose tariffs. Nonetheless, Mnuchin insisted that the administration is unified on the China trade deal.
Potential Winners as Trade War Fears Ebb
A truce between the nations has alleviated risks in the equity market for now. A full-blown trade war would have had rippling effects on the global economy growth, casting a pall over businesses. Let us now look at stocks that have benefitted from the easing of trade tensions with China:
Industrials Lead the Way
Progress in trade talks has helped the Dow Jones Industrial Average close above the coveted 25,000 mark on May 21. The biggest percentage gainer on the blue-chip index was The Boeing Company (NYSE:BA) , up 3.6%. After all, the aerospace giant sells about a fourth of its commercial aircraft to Chinese customers.
By the way, China was supposed to impose tariffs of up to 25% on 106 American products, including airplanes, with empty weights between 15,000 kg and 45,000 kg. This would have affected Boeing’s 737-800, 737-700 and 737-900 ER models as their operating empty weights fall in the range targeted by China. But, with tariff scares behind us for now, Boeing has ample reasons to rejoice.
Chipmakers Tread Higher, Tech Stocks Make Merry!
Within the Dow, Intel Corporation (NASDAQ:INTC) also saw its shares jump 1.5%. And why not? Intel generated 22.9% of revenues from China in the last 12 months, per FactSet. In comparison, the semiconductor company’s 20% of revenues came from the United States.
China, in fact, heavily relies on U.S. chipmakers, while semiconductors make up one of its largest import categories in terms of value. Hopes of a thaw in U.S.-China trade tensions provided strength to the chip sector. The PHLX Semiconductor Index advanced 1.1% compared with a 0.7% gain of the S&P 500.
Elsewhere in the chip sector, shares of KLA-Tencor (NASDAQ:KLAC), Lam Research (NASDAQ:LRCX), Qorvo Inc and Micron Technology (NASDAQ:MU) ended in the positive territory (read more: Zacks Investment Research
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