Market Braces for Tariff Deadline

Who wouldn’t love getting a beautiful letter?

The market certainly appreciated that President Trump received one from China President Xi Jinping. Stocks reversed their latest selloff upon hearing the news, but still finished lower for another session as the tariff deadline approaches.

The Dow lost 0.54% (or nearly 140 points) to 25,828.36, but it had been down as much as 450 points earlier.

The S&P slipped 0.30% to 2870.72, while the NASDAQ shed 0.41% to 7910.59. These indices also recovered adequately from sharper declines in the morning.

The trade issue has dominated this week, especially since a deal appeared to be right around the corner as recently as this past weekend. Then the President threatened to hike tariffs after China “broke the deal” by walking back many of their concessions.

Now the NASDAQ heads into Friday’s session with a loss of more than 3% for the week, while the other two major indices are off by about 2.5%.

So here we go!

If there are no breakthroughs in negotiations, the tariffs on $250 billion worth of Chinese goods will more than double to 25% from 10%. The President will also consider 25% tariffs on additional products.

That’s where the “beautiful letter” comes in. The market may not believe a deal is coming in the next few hours, but enough progress could potentially be made to again delay increasing the tariffs. So its encouraging to have a correspondence from your adversary that stresses ‘coming together’.

And Trump himself stated that a deal was still possible.

So we’re still trading on headlines and statements at the moment, but there will be some real news on this issue in the next few hours. Either the tariffs go up at midnight followed by retaliation from China… or they don’t.

We will get a definite answer on that trade question soon, which would mark a rare moment of certainty in this conflict.

The answer could also decide the direction this market takes for the foreseeable future.

Today's Portfolio Highlights:

Counterstrike: It looks like Stamps.com Inc. (STMP) doesn’t have an answer to losing its deal with USPS. That’s why Jeremy shorted the stock back in March. Since then, the company cut its guidance once again, sending its share price into a tailspin. With market uncertainty on the rise, the editor thought this was a good time to short cover STMP and bank a profit of 58.1%. Meanwhile, though Jeremy is extremely pessimistic that any kind of trade deal will ever get done, there’s always a chance of some good news. The ProShares Ultra VIX Short-Term Futures ETF (UVXY) double-leverage hedge was the perfect choice for a rough week like this, but the editor doesn’t want to get greedy in such unpredictable times. Therefore, he sold two-thirds of the position for return of 28.7% in 1 just week!

Options Trader: Sometimes you’ve just got to take the money and run! Case in point, shares of Copa Holdings (CPA) soared on Thursday after this transportation company reported an earnings surprise of nearly 30%. But Kevin can’t forget how much this stock dropped in the weeks before the report, and he’s not very thrilled with its outlook. The editor decided to get out of CPA by removing the bull call spreads he added in January. The portfolio sold to close the 2 Aug 90 Calls AND bought to close the 2 Aug 100.00 Calls. The spreads brought a nice return of 53%.

Surprise Trader: It may not feel like it right now, but the market is still near all-time highs despite the recent trade-inspired selloffs. As a result, Dave thinks that the investment managers are set to report solid quarters. With a positive Earnings ESP of 4.4% for the quarter coming after the bell on Monday, Legg Mason (LM) is one of those companies that looks poised for success. The editor added LM on Thursday with a 12.5% allocation after removing a couple positions, including Cadence Design Systems (CDNS) for a return of 5.9% in less than a month. Read the full write-up for more on this new buy.

All the Best,
Jim Giaquinto

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