With the markets having a record June recovery, after a brutal May selloff, the Dow had its best June performance since 1938 when it gained 24.26%, while the S&P slotted its best June since 1955 when it gained 8.23%. This meteoric rise, in conjunction with the Fed expressing the willingness to cut interest rates if necessary, and news this weekend that the U.S. and China have reached a ceasefire in the tariff war, has driven stocks higher. But which sectors are the biggest winners in the trade truce?
The primary champions from the trade war treaty are chipmakers. Semiconductors not only were enhanced by the agreement between President Donald Trump and Chinese President Xi Jinping to delay any new tariffs, but also from Trump’s decision to mitigate his ban on American companies selling products to Chinese telecom giant Huawei.
Qualcomm, Nvidia, Texas Instruments, Intel, Teradyne, and Applied Materials were among the handful of stocks with substantial sales exposure to Greater China in the Russell-1000 Index, according to a Goldman Sachs 2018 survey. The VanEck Vectors Semiconductor ETF, which includes these and others of the top S&P 500 semiconductor stocks, rose over 2.7% on Monday.
Another collection of beneficiaries in the trade truce is the retailers that are affected by tariffs. UBS warned last month that specific retailers with a more substantial percentage of merchandise exposed to Chinese duties have “significant risk” since elevated tariffs would trigger growing costs for the imported goods they sell.
“The brunt of a full 25% tariff would likely be quite inflationary as the retailers have indicated they would use strategic price actions, where possible to mitigate the impact,” said Michael Lasser, equity analyst at UBS.
Companies such as Floor & Décor, Dick’s Sporting Goods, O’Reilly Automotive, Bed Bath & Beyond, and Restoration Hardware all have significant exposure to Chinese companies, and are likely to perform much better absent the threat of renewed tariffs. Floor & Decor in particular has roughly 45% of its products sold to China, according to UBS estimates, based on company reports and conference calls. The flooring retailer’s stock jumped about 1% on Monday on the tariff news.
Investors looking for retail ETFs to benefit from the tariff retreat might consider the First Trust Consumer Discretionary AlphaDEX Fund (FXD) or the ProShares Ultra Consumer Services (UCC).
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