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President Donald Trump finally set in motion tariffs on as much as up to $60 billion in Chinese imports on Thursday. Consequently, China too has announced plans for reciprocal tariffs on $3 billion of imports from the United States, giving rise to fears of an ensuing trade war. This saw the Dow once again tumbling more than 700 points or almost 3% on Thursday.
Going by the 90-year S&P 500 history, March is considered a one of the best months for stocks. This too seems to have been proven wrong this time, as the markets failed to start the month on a high owing to Trump’s proposed imposition of 25% and 10% tariffs on imported steel and aluminum, respectively.
Evidence of the panic is the spiking of the market’s preferred fear guage to its highest level since Feb 5. Given that these events could drastically dent investor confidence, picking low beta stocks looks like a smart option at this point. Beta measures the tendency of a stock's returns to respond to market swings. Low correlation stocks provide protection during turbulent times as these are less prone to day-to-day fluctuations.
Volatility Index Spikes
After trade fears escalated, the CBOE Volatility Index, which gauges the level of fear gripping the market, skyrocketed 31% to hit 23.35, finally settling at 24.04 on Thursday. The VIX has more than doubled so far this year.
Current weakness in the technology sector as well as the selloff which ensued post Trump’s levies on China, pushed up VIX. This also marked the highest increase for VIX in a single session since Feb 5, when the fear-gauge doubled from its lowest-ever level.
U.S.-China Trade War to Follow?
Trade war fears showed up in late February and the markets have remained volatile in March. Early this month, Trump finally announced tariffs on imported steel and aluminum, which saw shares of major automakers and airline companies declining. Although Canada was Mexico, the largest exporters of steel to the United States, were exempted, the move was tailored at targeting China.
Trump has been quite vocal about his ‘America First’ agenda, a culmination of his longstanding view that weak U.S. trade policies have affected the country’s workforce and increased the federal deficit. No sooner did the metal tariffs come into effect, Trump announced his plans of imposing tariffs of as much as $60 billion on Chinese imports, which were given the final shape on Thursday.
The initial fears, which already saw shares declining throughout March, finally saw the Dow Jones industrial average taking a massive hit, closing down more than 724 points or 2.9% on Thursday. This also marks the blue-chip average’s fifth worst daily point drop in history. Also, this is the worst drop since Feb 8, when it tanked more than 1,000 points. Moreover, the Dow is down 3.1% for the year and 9.99% from its January all-time high. This almost puts it back in correction territory once again.
China was prompt in announcing its plans for reciprocal tariffs of $3 billion on imports from the United States in its first response to Trump’s instruction to U.S. Trade Representative Robert Lighthizer to slap tariffs on Chinese imports. Will this enrage China enough to counter the United States, thus triggering a trade war? Let’s see.
Our Choices
Understandably, it’s too early to predict the implications of the tariffs or a trade war with China. How long the fears of inflation continue to take a toll on the markets is also hard to predict. In such an event, investors should build a strategy on low-risk assets and a combination of parameters that lead to better returns. The best way to go about doing this is by creating a portfolio of low-beta stocks, which are inherently less volatile than the markets they trade in. In this case, a low beta ranges from 0 to 1.
These stocks are also mega caps that boast immense financial strength and are immune to market vagaries. Such stocks reflect solid financial structure, healthy underlying fundamentals and better quality business. Further, these boast a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Toyota Motor Corporation (TM - Free Report) produces, sells, leases and repairs passenger cars, trucks, buses, boats, airplanes and other products in Japan and most foreign countries. The company has a Zacks Rank #1 and a beta of 0.73. It has a dividend yield of 2.8%. The Zacks Consensus Estimate for its current-year earnings rose 11.8% in the last 30 days. Toyotais expected to return 36.70% this year, higher than the industry’s estimated returns of 17.8%.
NextEra Energy, Inc. (NEE - Free Report) is a leading clean energy company. The stock carries a Zacks Rank #2 and a beta of 0.32. The dividend yield is 2.7% for NextEra. The Zacks Consensus Estimate for its current-year earnings rose 5.6% in the last 60 days. The company is expected to return 15.3% this year, more than the industry’s expected returns of 5.9%.
The Estee Lauder Companies Inc. (EL - Free Report) is one of the world's leading manufacturers and marketers of quality skin care, makeup, fragrance and hair care products. The company has a beta of 0.69 and a dividend yield of 1.1%. The Zacks Consensus Estimate for its current-year earnings rose 0.1% in the last 30 days. Zacks Rank #2 Estee Lauderis expected to return 25.6% this year, more than the industry’s estimated returns of 13.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Diageo plc (DEO - Free Report) is a multinational branded food and drinks company. The company has an outstanding portfolio of world-famous food and drinks brands include Smirnoff, Johnnie Walker, J&B, Gordon's, Malibu, Baileys, Guinness and Tanqueray. The stock has a Zacks Rank #2 and a beta of 0.73. The dividend yield is 2.6%. The Zacks Consensus Estimate for its current-year earnings rose 4.1% in the last 60 days. Diageois expected to return 18.8% this year, more than the industry’s expected returns of 15.5%.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana. Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
Image: Bigstock
4 Low Beta Stocks to Buy as Trade War Looks Real
President Donald Trump finally set in motion tariffs on as much as up to $60 billion in Chinese imports on Thursday. Consequently, China too has announced plans for reciprocal tariffs on $3 billion of imports from the United States, giving rise to fears of an ensuing trade war. This saw the Dow once again tumbling more than 700 points or almost 3% on Thursday.
Going by the 90-year S&P 500 history, March is considered a one of the best months for stocks. This too seems to have been proven wrong this time, as the markets failed to start the month on a high owing to Trump’s proposed imposition of 25% and 10% tariffs on imported steel and aluminum, respectively.
Evidence of the panic is the spiking of the market’s preferred fear guage to its highest level since Feb 5. Given that these events could drastically dent investor confidence, picking low beta stocks looks like a smart option at this point. Beta measures the tendency of a stock's returns to respond to market swings. Low correlation stocks provide protection during turbulent times as these are less prone to day-to-day fluctuations.
Volatility Index Spikes
After trade fears escalated, the CBOE Volatility Index, which gauges the level of fear gripping the market, skyrocketed 31% to hit 23.35, finally settling at 24.04 on Thursday. The VIX has more than doubled so far this year.
Current weakness in the technology sector as well as the selloff which ensued post Trump’s levies on China, pushed up VIX. This also marked the highest increase for VIX in a single session since Feb 5, when the fear-gauge doubled from its lowest-ever level.
U.S.-China Trade War to Follow?
Trade war fears showed up in late February and the markets have remained volatile in March. Early this month, Trump finally announced tariffs on imported steel and aluminum, which saw shares of major automakers and airline companies declining. Although Canada was Mexico, the largest exporters of steel to the United States, were exempted, the move was tailored at targeting China.
Trump has been quite vocal about his ‘America First’ agenda, a culmination of his longstanding view that weak U.S. trade policies have affected the country’s workforce and increased the federal deficit. No sooner did the metal tariffs come into effect, Trump announced his plans of imposing tariffs of as much as $60 billion on Chinese imports, which were given the final shape on Thursday.
The initial fears, which already saw shares declining throughout March, finally saw the Dow Jones industrial average taking a massive hit, closing down more than 724 points or 2.9% on Thursday. This also marks the blue-chip average’s fifth worst daily point drop in history. Also, this is the worst drop since Feb 8, when it tanked more than 1,000 points. Moreover, the Dow is down 3.1% for the year and 9.99% from its January all-time high. This almost puts it back in correction territory once again.
China was prompt in announcing its plans for reciprocal tariffs of $3 billion on imports from the United States in its first response to Trump’s instruction to U.S. Trade Representative Robert Lighthizer to slap tariffs on Chinese imports. Will this enrage China enough to counter the United States, thus triggering a trade war? Let’s see.
Our Choices
Understandably, it’s too early to predict the implications of the tariffs or a trade war with China. How long the fears of inflation continue to take a toll on the markets is also hard to predict. In such an event, investors should build a strategy on low-risk assets and a combination of parameters that lead to better returns. The best way to go about doing this is by creating a portfolio of low-beta stocks, which are inherently less volatile than the markets they trade in. In this case, a low beta ranges from 0 to 1.
These stocks are also mega caps that boast immense financial strength and are immune to market vagaries. Such stocks reflect solid financial structure, healthy underlying fundamentals and better quality business. Further, these boast a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Toyota Motor Corporation (TM - Free Report) produces, sells, leases and repairs passenger cars, trucks, buses, boats, airplanes and other products in Japan and most foreign countries. The company has a Zacks Rank #1 and a beta of 0.73. It has a dividend yield of 2.8%. The Zacks Consensus Estimate for its current-year earnings rose 11.8% in the last 30 days. Toyota is expected to return 36.70% this year, higher than the industry’s estimated returns of 17.8%.
NextEra Energy, Inc. (NEE - Free Report) is a leading clean energy company. The stock carries a Zacks Rank #2 and a beta of 0.32. The dividend yield is 2.7% for NextEra. The Zacks Consensus Estimate for its current-year earnings rose 5.6% in the last 60 days. The company is expected to return 15.3% this year, more than the industry’s expected returns of 5.9%.
The Estee Lauder Companies Inc. (EL - Free Report) is one of the world's leading manufacturers and marketers of quality skin care, makeup, fragrance and hair care products. The company has a beta of 0.69 and a dividend yield of 1.1%. The Zacks Consensus Estimate for its current-year earnings rose 0.1% in the last 30 days. Zacks Rank #2 Estee Lauder is expected to return 25.6% this year, more than the industry’s estimated returns of 13.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Diageo plc (DEO - Free Report) is a multinational branded food and drinks company. The company has an outstanding portfolio of world-famous food and drinks brands include Smirnoff, Johnnie Walker, J&B, Gordon's, Malibu, Baileys, Guinness and Tanqueray. The stock has a Zacks Rank #2 and a beta of 0.73. The dividend yield is 2.6%. The Zacks Consensus Estimate for its current-year earnings rose 4.1% in the last 60 days. Diageo is expected to return 18.8% this year, more than the industry’s expected returns of 15.5%.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana. Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>