The threat of an ever-expanding trade war has been dragging down many investments in stocks. There are lots of doomsday scenarios out there predicting not only the collapse of the stock market but of the global economy. But, nobody wants a total disaster. Rather the Americans, Chinese, Europeans, and others all want the best deal they can get, short of creating a situation in which everyone loses. So, what happens to your investments when the trade war is resolved?
Economic Growth with Fewer Trade Worries
CNBC reports that Goldman Sachs sees a possible stock market surge. In response to questions from investors, Goldman looked at where to invest if trade tensions fall and the economy continues to perform well.
The looked at what would happen if trade tensions fade, the Federal Reserve stops raising rates after two or three hikes and economic growth continues to rise. Under such a scenario, Goldman’s estimate for S&P 500 2019 earnings per share would rise by 3 percent, to $175, and a lower-than-expected Treasury yield would enable a market price to earnings multiple of 18 times. This would lead to a year-end price target for the S&P 500 of 3,150, 11 percent higher than Friday’s close.
Where would the growth, or recovery, occur in the event trade tensions ease off? We wrote recently about companies hurt or at least threatened by trade worries. Harley Davidson moving production out of the USA in response to a trade war was one. The other was Boeing outsourcing production to retain foreign business and remain profitable. Boeing is obviously the bigger issue as their exports rival the dollar value of all US agricultural exports. If the threat of a trade war eases, Boeing will be a likely beneficiary. And, then there are US food exporters like Tyson.
This morning, Quad 7 Capital’s BAD BEAT Investing discussed Tyson Foods (TSN) as a buy strong buy under $60. Here is the deal. With fears over inflation, rising feed and labor costs, and international tariffs, investors have been jumping ship. We believe at $59 a share, the Street is mispricing the stock. In this column, we will describe what we are seeing in this leading world supplier of proteins to industry and retail supermarkets. Currently, we have seen an extended selloff and we believe it is time to get long.
What happens to your investments in Tyson when the trade war is resolved? Its exports will surge, its profits will increase, and its stock price will likely go up. This may be the ideal sort of investment to make if you believe that cooler heads will eventually prevail and an all-out trade war will be avoided.
If you have been invested in US exporters who have been hurt by the threat of an all-out trade war and you believe that the trade war will fizzle instead of flare up, consider staying with those investments as they may well recover very nicely.