5 Ways To Play Tariff Worries

| July 9, 2018
Ways to Play Tariff Worries

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These corners of the market are a safer place for investors to settle during a trade war

U.S. equities continue to trade nervously at the start of U.S. trade tariffs on $34 billion of Chinese imports — an act that will then be met with countervailing tariffs on U.S. imports by the Chinese. While far more in potential tariffs have been announced by both sides as threats, neither side is showing any evidence of being interested in backing down from what looks like a worsening cycle of escalation.

As a result, a growing number of stocks are succumbing to downside pressure. Without the steady bid underneath big-cap technology stocks, the major market averages would be in worse shape than they already are. The Dow Jones Industrial Average remains below its 200-day moving average.

Investors would do well to protect themselves from this worsening situation –especially with U.S. trading partners across Europe and in North America responding with new tariffs of their own. Here are five ways to play it:

Ways to Play Tariff Worries: Newmont Mining (NEM)

Newmont Mining

Gold and silver prices look set for a rebound here as risks rise, sentiment wilts and the U.S. dollar’s seeming unstoppable rally actually fizzles out. Analysts at Morgan Stanley upgraded Newmont Mining (NYSE:NEM) shares to “buy” back on June 12, just before prices took an excursion below their 200-day moving average.

The company will next report results on July 26 before the bell. Analysts are looking for earnings of 28 cents per share on revenues of $1.8 billion. When the company last reported on April 26, earnings of 35 cents per share beat estimates by two cents on a 7.5% rise in revenues. 

Ways to Play Tariff Worries: Pan American Silver (PAAS)

Pan American Silver

Pan American Silver Corp. (NASDAQ:PAAS) shares are bouncing off of their 50-day moving average and look ready for a breakout attempt above the May highs. Which in turn, would set up a run at the 2016 and 2017 highs. Silver prices are finding support near current levels, which are testing the lows set back in December.

The company will next report results on Aug. 8 after the close. Analysts are looking for earnings of 16 cents per share on revenues of $214.8 million.

When the company last reported on May 9, earnings of 20 cents beat estimates by four cents on a 4.2% rise in revenues.

Ways to Play Tariff Worries: iShares 20+ Year Treasury Bond ETF (TLT)

iShares 20+ Year Treasury Bond ETF

The iShares Barclays 20+ Year Treasury Bond ETF (NASDAQ:TLT), which tracks the price performance of long-term Treasury bonds, looks to be breaking out of a multi-month listlessness with a return to levels not seen since January. This is a reflection of the bond market pricing in macroeconomic troubles over the horizon since it’s in opposition to the high-yield dynamic one would expect with the Federal Reserve raising rates and inflation drifting higher.

Instead, investors are rushing into it in a safe haven bid. Should stock prices roll over more dramatically as the trade war heats up, Treasury bond prices will be a big beneficiary, lifting the TLT higher.

Ways to Play Tariff Worries: iPath Short-Term VIX (VXX)

iPath Short-Term VIX

The iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX), which tracks the performance of the CBOE Volatility Index, has pushed above its 200-day moving average as options traders bid up the price of downside protection on the S&P 500. The nervousness has been building since early June.

Watch for a surge in the VXX if and when the S&P 500 drops below its 200-day moving average, a level that has provided consistent and steadfast support since February.

Ways to Play Tariff Worries: ProShares UltraShort Oil & Gas (DUG)

ProShares UltraShort Oil & Gas

Crude oil prices have been surging since the end of June, when the limp-wristed OPEC decision on raising production resulted in a smaller-than-expected change and lifted prices on fears of an ongoing production shortfall amid falling inventories. But something odd has been happening during this time: Energy stocks haven’t followed suit, as if equity traders looked through the razzle-dazzle to the surge of new shale production likely to follow.

The ProShares UltraShort Oil & Gas ETF (NYSEARCA:DUG), which is a leveraged inverse ETF tied to the energy sector, is set to rally as crude oil catches down to the nervousness displayed by energy equities. Hard to see crude oil showing a sustained rise if global trade activity falls.

Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. 


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