Investors will be watching closely this weekend for news of a potential trade truce between the U.S. and China, after the leaders of both countries meet on the sidelines of the G-20 meeting in Japan Saturday.
While the broad stock market — as measured by the S&P 500 index
or the Dow Jones Industrial Average
— will surely move on the news of a deal or lack thereof, investors would be wise to focus on the industries and companies that have been most sensitive to trade news in recent years.
Jeff deGraaf of Renaissance Macro Research delved into the industry-level reaction to positive trade news in Friday note to clients, finding that capital goods, materials, and automobiles and components stocks perform best on days when there is news of trade tensions easing.
He also found that on days when there is negative trade news, that semiconductor, consumer durables and automobiles and components stocks perform worst.
Looking at individual names within these industries provides some stark examples of over and underperformance on days when major news on the trade front breaks.
For instance, on May 6, the first trading day following President Trump’s announcement that he would raise tariffs on $200 billion of imports after a breakdown in trade talks, semiconductor names suffered greatly.
Microchip Technology Inc.
shares fell 3.7%, versus a 0.5% decline in the S&P 500, while Micron Technology Inc.
shares declined 2.8% and Nvidia Corp.
stock fell 1.7%, according to FactSet.
On the other hand, on the first trading day after the most recent G-20 meeting last December, capital goods stocks rallied on the news that Presidents Trump and Xi had agreed to a deal to halt the escalation of tariffs that had been expected to rise in January.
On December 3, 2018, Deere & Co.
shares rallied 4.7%, General Electric Co.
stock rose 4.1% and Stanley Black and Decker Inc.
shares jumped 4%, compared with a 1% rise for the S&P 500.