Market Drops as China Retaliates

The major indices lost more on Monday than they did all of last week, as it was China’s turn to raise tariffs after last Friday’s trade deadline came and went with no agreement.

It was the kind of session that many had expected on Friday when the U.S. raised tariffs to 25% on $200 billion worth of Chinese goods. However, the market took that news in stride with indices actually enjoying their best day of the week.

But China’s decision to retaliate by raising tariffs on $60 billion worth of U.S. goods snapped the market out of its good mood. Instead, the indices saw a late 2018-style selloff.

The NASDAQ took the brunt of today’s plunge as the semiconductors do a lot of business in China, which means this space could be on the frontlines of the trade conflict. The index had its worst day of the year by plunging 3.41% (or nearly 270 points) to 7647.02.

The S&P slipped 2.41% to 2811.87 while the Dow dropped 2.38% (or about 617 points) to 25,324.99. And we didn’t get much of a late-day rebound as we saw during most of last week’s selloffs.

Apple was a big drag on all the indices with the iPhone maker dipping 5.8%.

As of right now, there are no more talks scheduled between the two countries until President Trump and China President Xi Jinping meet at the G-20… in late June!

However, it wouldn’t be much of a surprise if more talks are scheduled in the interim.

Want some good news? The President hasn’t decided yet if he’s going to place new tariffs on $325 billion worth of additional Chinese goods. Also, China’s retaliatory tariffs won’t take effect until June 1.

It looks like we’ll be back to watching the headlines for the time being. We can expect to hear good things from participants on both sides, but especially from the President and his staff. The big question is: Will the market still be listening?

Today's Portfolio Highlights:

Insider Trader: The market “threw the baby out with the bath water” on Monday as the re-ignited trade conflict with China sparked a sharp selloff and increased uncertainty for investors. There’s no telling how long this volatility will last, so Tracey decided to take some profits while she could. The editor sold half of Discover Financial (DFS) and half of Cadence Bancorp (CADE) for gains of 12.1% and 9%, respectively.

But Tracey didn’t let this sharply negative market keep her from buying a new name. Earlier this month, health insurance giant UnitedHealth (UNH) saw its CEO and a director pick up shares of their own company. Shares are down approximately 10% over the past three months in large part because of the Medicare-for-all proposal, but the editor thinks that selloff was overdone. She believes that UNH will provide some safety compared to other names with direct China exposure. The stock was added on Monday with a 10% allocation. Read the full write-up for more. 

Large-Cap Trader: The latest round of tariffs in this trade conflict has convinced John to dump his high-beta growth tech stocks, which have lots of exposure to China. Fortunately, the portfolio’s really going to the bank with three double-digit winners. These solid returns include: CDW Corp. (CDW, +19.3%), Micron (MU, +16.8%), Lam Research (LRCX, +15.6%) and Applied Materials (AMAT, +5.6%).

Black Box Trader: The portfolio replaced six names in this week's adjustment. The positions sold today were:

• Voya Financial (VOYA)
• Principal Financial (PFG)
• Meritor (MTOR)
• CBRE Group (CBRE)
• Hertz Global (HTZ)
• Tronox (TROX)

The new buys that replaced these names are:

• Sysco Corp. (SYY)
• Quanta Services (PWR)
• American Int'l Group (AIG)
• Hartford Finanical (HIG)
• Loews Corp. (L)
• Omnicom Group (OMC)

Read the Black Box Trader's Guide to learn more about this computer-driven service designed to take the emotion out of investing.

Surprise Trader: "We have a handful of folks on Earth who are in a manhood contest with each other. Literally playing chicken while the world economy hangs in the balance. But do you know what the craziest part is? I’m beginning to believe that our guy is crazy like a fox and has just what it takes to pull it off. Maybe that’s the sort of optimism and courage that American capitalism is all about. Maybe that’s exactly what we need right now." -- Dave Bartosiak  

Until Tomorrow,
Jim Giaquinto

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