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Trump Brings Holiday Cheer for These Stocks & ETFs

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The July upsurge in the key U.S. indexes wavered to start August as stocks slipped mainly on renewed U.S.-China trade tensions. Investors should note that Trump announced plans to levy a 10% tariff on $300 billion of Chinese imports that aren’t subject to U.S. duties yet. The new tariffs, which covered a host of consumer products, was initially said to be put into effect on Sep 1 (read: Fed & Trade Trigger Market Bloodbath: 6 Hot Inverse ETF Areas).

However, U.S. President Donald Trump backpedaled his Sep 1 deadline for 10% tariffs on many Chinese imports, and delayed duties on cellphones, laptops and other consumer goods, in order to not dampen U.S. holiday sales. The United States Trade Representative office noted that new tariffs on certain consumer items would be held off until Dec 15.

Investors should note that as tariff tensions have heated up, consumer stocks are under immense pressure. An analysis by J.P. Morgan’s chief equity strategist Dubravko Lakos-Bujas indicated “that two-third of the products to be hit by the impending round of tariffs are concentrated in the technology and consumer discretionary sectors of benchmark stock indexes,” as quoted on MarketWatch. According to a report by UBS, hardline and grocery retail are the hardest hit this time.

Retailers will try to pass on some burden of higher costs to consumers, thereby raising prices. This is likely to bump up inflation levels in the U.S. economy. Higher inflation in turn will give a boost to bond yields. This would increase consumers’ outlays and hurt ETFs.

How the New List & Deadline Affect Consumer & Tech Sectors?

The latest announcement of an almost $300 billion list of products from China has been segregated into two separate parts. Per Bloomberg, some goods like agricultural products, antiques and kitchenware are on the Sep 1 list. In all, this whole chargeable section has a total value of more than $110 billion, according to a Bloomberg News analysis of last year’s import figures.

“Flat screen televisions from China, a category worth $4.5 billion, also will face 10% tariffs” on Sep 1. Live animals, dairy products, skis, golf balls, contact lenses, lithium ion batteries and snowblowers will also face tariffs on Sep 1, per Reuters.

However, big-ticket items like smart-phones, laptops, and children’s toys, worth about $160 billion, will not bear the brunt of higher tariffs until Dec 15. Per USTR, there will be a delay in tariffs on items where China supplies more than 75% of total U.S. imports. Product categories where China supplies less than 75% will face higher tariffs starting Sep 1, per Reuters.

Consumer Stocks & ETFs Shine

With the holiday season being all-important to the consumer discretionary (and the technology sector to some extent), such delay on major products came as an early Christmas gift.  Most retailers would try to stock up their holiday merchandise before the September deadline.

The Retail Industry Leaders Association said “removing some products from the list and delaying additional 10% tariffs on other products, such as toys, consumer electronics, apparel and footwear, until Dec 15 is welcome news as it will mitigate some pain for consumers through the holiday season,” as quoted on Reuters.

Some of the top-performing consumer stocks on Aug 13 were clothing and footwear companies like Centric Brands Inc. CTRC (up 6.7%), Iconix Brand Group Inc. ICON (up 6.3%), Caleres Inc. CAL), PVH Corp. (PVH - Free Report) (up 3.6%) and Steven Madden Ltd. SHOO (up 3.4%).

Toy companies Mattel Inc. MAT (up 4.6%) and Hasbro Inc. HAS (up 2.8%) were among the top gainers. Beverage company Castle Brands Inc. ROX (up 5.7%) and food company Freshpet Inc. FRPT (up 5.4%). Retailer Best Buy Co. Inc. BBY added about 6.5%. Discount retailer Dollar Tree Inc. (DLTR) added about 4%.

Retail ETFs like SPDR S&P Retail ETF XRT (up 1.6%), VanEck Vectors Retail ETF RTH (up 2.0%) and First Trust Nasdaq Retail ETF FTXD (up 2.6%) deserve special mention (see all Consumer Discretionary ETFs here).

Mixed Impact on Tech; Key Stocks Sizzle

According to U.S. Census data, “China supplied 82% of U.S. cell phones and 94.5% of U.S. laptops in 2018.” So, a delay in tariffs in such stuffs means a lot to shoppers and shopkeepers before Christmas. The Consumer Technology Association celebrated the delay but added that it will start paying more for some of tech devices, including TVs, smart speakers and desktop computers.

Electronic equipment companies like Koss Corporation KOSS (up 4.3%), Apple AAPL (up 4.2%) and Vuzix Corporation VUZI (up 3.6%) gained considerably. Apple Inc.’s AAPL iPhones will not be subject to new import taxes until mid-December.

Investors can also find strength in Apple-Heavy ETFs like iShares U.S. Technology ETF IYW (up 2.4%), Select Sector SPDR Technology ETF XLK (up 2.5%) and Vanguard Information Technology ETF VGT (up 2.4%) (see all Technology ETFs here).

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