Since the start of 2019, the United States and China have been showing signs of reconciliation over the year-long trade tensions. But Sunday afternoon, Trump twitted that the current 10% tariffs on $200 billion worth of Chinese goods will be raised to 25% on Friday. Moreover, Trump said that he will impose 25% tax on an extra $325 billion of Chinese goods “shortly,” per CNBC.
Since market watchers have already priced in a prospective trade deal to a large extent, the sudden emergence of uncertainty has every reason to send the markets into a tailspin. Volatility ETN iPath S&P 500 VIX ST Futures ETN (VXX - Free Report) gained 16.5% on May 7. Needless to say, the broader market ended in the red, responding to the news.
The Dow Jones Industrial Average — one of the most susceptible zones to trade tensions — lost about 1.8% on May 7. SPDR Dow Jones Industrial Average ETF (DIA - Free Report) was down about 1.8% on the day.
The index suffered its worst fall since Jan 3. None of the components in the 30-stock gauge was in the green on May 7. Amid the pool, we highlight a few stocks that lost the maximum. Let’s just find out why (read: US-China Trade Tensions Re-Escalate: 7 Vulnerable ETF Areas).
Boeing Company(BA - Free Report) — Down 3.9%
China is a key market for Boeing, where it serves as the largest exporter of America. In September 2017, the company said that it expects China to spend about $1.1 trillion over the next 20 years, purchasing more than 7,200 airplanes. So, the Chinese government might order Airbus in place of Boeing jets if the United States embitters its trade ties with China. Boeing was the worst performer in the Dow Jones index.
United Technologies (UTX - Free Report) — Down 3.40%
The company provides high-technology systems and services to building and aerospace industries. Despite reporting strong first-quarter results in late April, the company believes it may suffer this year with the Boeing 737 Max on hold. Boeing recently cut 737 Max jet production to 42 per month temporarily from 52, after two deadly accidents in the past six months.
The U.S. aerospace supplier United Technologies said Boeing’s decision to slash output of its troubled 737 Max aircraft could cut 10 cents per share off its earnings this year, per Financial Times. Since United Technologies’ performance is dependent on Boeing to some extent, the latest trade-war-induced slump is self-explanatory.
Apple Inc. (AAPL - Free Report) — Down 2.70%
Apple, which has about 17% exposure to China, has been seeing its Chinese smartphone shipments decline, explaining the extent of the iPhone maker’s market share loss in the world’s largest mobile device field against local rivals like Huawei Technologies.
In the first quarter of 2019, Apple’s greater China sales slumped 22% in a second successive quarterly slowdown. To counter the downturn, the company has even cut prices in China.
Per an analyst, Apple's slowdown in China can be attributed to "a saturation of the high end of the market" and "lower consumer confidence" that impacted replacement cycles. If trade tensions deepen, Chinese growth is likely to decelerate further and hurt Apple’s sales.
Also, per Trump, there will not only be higher tariffs, but additional goods — including Apple products — will also be subject to a new 25% tax. Per a Bloomberg article, a 25% tax could compel Apple to move iPhone production out of China (read: Take a Bite of Apple With These ETFs on Solid Earnings).
Caterpillar (CAT - Free Report) — Down 2.26%
Since the trade truce would have a significant positive impact on the industrial and manufacturing sector, most industrial heavyweights suffered immensely on Tuesday. Higher tariffs and fears of a slowdown in China have dealt a blow to the segment. 3M Company MMM too lost 2.14% on May 7.
Home Depot Inc. (HD - Free Report) — Down 2.43%
It is yet another vulnerable company to the trade tensions. In any case, retailers have been cautious about passing costs on to price-sensitive customers amid global growth worries. Per Home Depot’s executive vice president of merchandising, “the home goods retailer has been paying for every import since September.” So, a 25% tariff would worsen the situation.
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