Wall Street Navigates Rising Trade Risks and Market Highs Amid Political Uncertainty

These stocks will be the winners and losers of rising U.S.-China trade tensions, Wall Street says

Tensions are ratchetting up between U.S. and its major trading partners. In the latest, Bloomberg on Wednesday reported that the Biden administration is considering a wide-sweeping rule to clamp down on companies exporting their critical chipmaking equipment to China. That follows new tariff rates on $18 billion worth of Chinese imports -- including electric vehicles, solar products and steel as well as aluminum -- that the Biden administration announced in May. And in an interview published Tuesday, former president Donald Trump said Taiwan should pay the U.S. for defense , claiming also that Taiwan took "about 100%" of America's semiconductor business. Trump also pledged that, if elected, he will impose a 10% tariff on all U.S. imported goods, and more than 60% tariffs on Chinese imports. Markets are betting on increasing odds of a Trump presidency after the attempted assassination on the former president last weekend, raising the question of what this means for investors. U.S.-China risks JPMorgan says China's utilities sector could be "the winner" if U.S.-China tensions escalate. It noted that during the three periods of U.S.-China trade tensions between 2018 and 2020, where there was escalation, a standoff and a re-escalation, the MXCN Utilities index did better than the broader MXCN index -- with an average outperformance of 12.8%. JPMorgan's top picks in this area in this area include: Hong Kong and China Gas , Power Assets and Huaneng Power . They are all Hong Kong-listed. The bank also noted that the Republicans have pledged to "bring critical Supply Chains back to the U.S., ensuring National Security and Economic Stability" and "strengthen Buy American and Hire American Policies." That could be negative for Chinese tech exporters, it said in its July 17 report. Europe's 'prime concern' Europe's gross domestic product, as well as the earnings of its companies, could be hit by tariffs, said Goldman Sachs in a July 17 report. "Prediction markets are now assigning a high probability of a Trump re-election n(c.70%). For Europe, the prime concern is tariffs," wrote Goldman analysts. Goldman's economists estimate Trump's 10% tariff, if it comes to pass, would take out one percentage point from the euro area's gross domestic product. Each one percentage point drop in sales-weighted GDP would cause a 10% decrease in European stocks' earnings-per-share, said Goldman. Overall, the total hit to Europe's earnings-per-share would be about six to seven percentage points, the bank said. "If the entire impact came in 2025 this would be enough to eliminate any growth that year (our current top-down forecast is 4%)," Goldman wrote. The bank also looked to history as a guide, saying that emerging markets were the worst performers in response to tariffs imposed in 2018 and 2019. China was hit the most, followed by Europe and then then the United States. Within Europe, Germany was more affected than France, said Goldman. Within sectors, beneficiaries of rising trade risks tend to be defensive stocks such as utilities, health care as well as Europe's GRANOLAS stocks, according to the bank. Goldman coined the term GRANOLAS, which refers to the continent's largest market-cap companies: GSK , Roche , ASML , Nestle , Novartis , Novo Nordisk , L'Oreal , LVMH , AstraZeneca , SAP and Sanofi . Cyclical stocks -- autos, industrials and financials -- tend to be negatively correlated to trade uncertainty, said Goldman. Overall, if Trump gets reelected, Goldman is bullish on its basket of stocks that comprises European companies with U.S.-based businesses rather than exporters. It noted that in recent years, a large portion of Europe's manufacturing production has been shifted to the U.S. Constituents of that basket include: Air Liquide , British American Tobacco , Dassault Systemes , GSK , Novo Nordisk , Roche , Stellantis , Intercontinental Hotels and more. Mega tech stocks Global chip stocks fell sharply on Wednesday, with ASML , Nvidia and TSMC posting declines after those reports of potentially tighter trade restrictions from the U.S. Those declines have implications for mega tech earnings, according to Louis Navellier, chairman and founder of Navellier & Associates. "Today's tech correction seems to suggest that the growth rate of Mega Tech earnings, which have a very big influence on overall market earnings, are expected to slow," he wrote in a Wednesday note. But he says a "meaningful selloff" in mega tech will see other names "pushed down as collateral damage." "These will be buying opportunities. And if the AI narrative plays out as expected, a material sell-off in Mega Tech will present a buying opportunity in those names as well," he wrote. -- CNBC's Michael Bloom contributed to this report.

A Trump Trade? The Markets Are Hitting New Highs, But It's About More Than Who Wins in November

Stocks have been on a tear of late and some on Wall Street are calling it the "Trump trade," reflecting the increasing likelihood of a victory in November for the former president and GOP nominee. On Tuesday, the Dow Jones Industrial Average soared more than 700 points after Trump survived an assassination attempt Saturday at a rally in Pennsylvania. The former president is receiving a rapturous reception at the Republican National Convention in Milwaukee this week. Trump famously used the stock market as a barometer of his popularity and success in his first term in office. But the market suffered one of its worst downturns during his term, as shutdowns during COVID-19 brought economic activity to a halt in 2020. And stocks have done very well during much of President Joe Biden's term. The S&P 500 has hit new highs 38 times this year alone. "We were seeing the inklings of a Trump rally since the debate," says Eric Diton, president and managing director of The Wealth Alliance. But, he adds, it has spiked since the attempted assassination. "The Dow has been taking off. It clearly is a Trump rally. The highest movers are companies that will benefit from Trump." Diton mentions fossil fuel energy companies, stocks of private prison and firearms firms as those that have seen bumps in their stocks. Markets often respond to negative political events by running higher. On Jan. 6, 2021, when Trump supporters launched an attack on the U.S. Capitol, the Dow notched a new high. Sometimes, when geopolitical events outside the U.S. cause angst, investors worldwide run to the perceived safety of American assets. "The Dow had another outstanding day, rallying on hopes of an interest rate cut from the Fed and lower taxes and regulations, which may be on the horizon," Chris Zaccarelli, chief investment officer for the Independent Advisor Alliance, said on Tuesday. Those looking to find a Trump message in the markets can certainly find plenty to support the notion of a market buoyed by Trump's survival and his choice of hard-right conservative J.D. Vance, a senator from Ohio, as his vice presidential pick. Bitcoin and Coinbase, both cryptocurrency stocks, rose 4% and 11% on Monday, respectively. Both Trump and Vance are seen as supporters of crypto companies. Tesla also rose 2% on the day, its founder and CEO Elon Musk having committed to supporting Trump with up to $45 million a month in campaign donations. But Apple also rose by 2%, and it is hard to see any particular correlation between sales of iPhones and a Trump presidency. Indeed, Apple is highly reliant on China as a source of components and also a massive market for its products, and the Trump-Vance ticket is seen as less than friendly to the communist country. Market analysts tend to believe that stocks follow the earnings outlook of companies over time, despite the daily fluctuations that can cause price spikes or losses. The economic backdrop also is important. So what could be driving stocks higher other than a love affair with Trump? There's probably no greater reason for the market moving higher than recent good news on inflation and the economy. And there has been plenty of good news on that front in the past few days. Last Thursday, the consumer price index - the most common measure of inflation - came in better than expected, actually falling in June to an annual level of 3%. In June 2022, it stood at 9.1%. Then on Monday, retail sales were better than expected in June as consumers showed a continued willingness to spend. The strength of the consumer since the pandemic has been the driving force of an economy that has outperformed expectations. Importantly, the strong showing helped dispel the idea that an economic slowdown in the first quarter might derail the economy for the remainder of the year. Market experts say what is happening now with stocks is a "sector rotation" where once-favored stocks such as technology giants Nvidia and Microsoft dominate gains, cool off, and more traditional industrial sectors like industrials and financial services pick up the slack. Strong earnings from Bank of America on Tuesday sent that company's shares up 5% as the company credited increased investment banking and asset management revenue as a reason for its earnings beating forecasts. Notably, shares of small companies have begun to rise, a key indicator of a broadening market as they have been laggards for much of the past couple of years. The rally in small caps signals "a broadening of what had previously been an extremely narrowly focused rally," BCA Research said early Wednesday. "Through July 9th, the Russell 2000 was up just 1% in 2024; in the subsequent five sessions, it's gained more than 10%. The S&P 500, which had been annihilating small-cap indexes, is up 1.5% over that stretch and 18.8% year to date." Another key factor in any stock rally is usually the behavior of the Federal Reserve. When the cost of money goes down, as it does when the Fed begins cutting interest rates, stocks usually do well - at least for a while. The belief in the "soft landing" story, where inflation abates, the economy softens but does not fall into a recession, continues on Wall Street. Fed Chairman Jerome Powell has spoken recently of the improvement in inflation and did so again Monday in a conversation at the Economic Club of Washington. "We've had three better readings. And if you average them, that's a pretty good pace," Powell said during a chat with David Rubenstein, club chairman and co-founded of the private equity firm Carlyle Group. The recent reports "do add somewhat to confidence" that inflation is slowing in a sustainable fashion, Powell said. Markets are now pricing in an almost certain cut in interest rates at the Fed's September meeting. That's not to dismiss the idea that a Trump victory is seen favorably by the markets. The former president's economic plan of deregulation of industry, tax cuts and a stronger stance toward some of America's largest economic competitors are viewed as supportive of markets by some. Conversely, economists warn that his anti-immigration stance and promise of higher tariffs on imported goods could be inflationary and will hit certain industries more than others. "Senator Vance's upbringing in rural America shaped him and, even though he has risen into the ranks of the elites, he epitomizes the Trump voter and the transformation of the Republican Party into a populist party that places a higher priority on labor than it does capital," said Brian Gardner, chief Washington policy strategist at Stifel. "This is a significant shift for a party that has been seen as the party of Big Business." And before people get too jacked up about the effects of who takes over the White House, stocks stumbled early Wednesday before recovering as the less tech-heavy Dow Jones Industrial Average added 150 points. The reason? Companies that make the chips used in artificial intelligence applications sold off on comments about Washington reining in exports of critical technologies to China. That is actually a Biden initiative, although Trump's comments reported on Tuesday that Taiwan, home to many of the chipmakers, should pay the U.S. for its defense are also being cited as a reason for the selloff. Both could be true, but it is equally likely that traders took some easy profits after Tuesday's strong rally.

Here's an update on all 34 portfolio stocks, including the winners in a Trump presidency

Here's a rapid-fire update on all 34 stocks in Jim Cramer's Charitable Trust, the portfolio we use for the CNBC Investing Club. During the July Monthly Meeting on Wednesday, Jim analyzed the portfolio through the lens of how a Donald Trump victory in the November election would impact our stocks. Apple : If Trump wins the election, the former president threatens to impose tariffs of 60% to 100% on Chinese goods, which could hurt demand in the region -- Apple's second-largest market. But the upcoming AI-integrated iPhone should spur sales, Jim said, ushering in an upgrade cycle for the company's flagship device. He also forecasted that shares will likely decline soon after hitting a series of record highs. A move lower for the stock, however, won't change the Club's "own it, don't trade" view. Abbott Laboratories : Baby formula litigation remains the biggest overhang on Abbott shares, and our view on it has yet to change. Abbott's lost market cap since mid-March, when rival Reckitt Benckiser lost a lawsuit over its formula, greatly exceeds the potential penalties it may need to pay. Advanced Micro Devices : Artificial intelligence remains a strong secular growth story, and our decision to restart a position in AMD on Monday reflects our belief in the company to benefit both in its data center business and PC unit. We added to our position again Wednesday in the sell-off. Amazon : With the stock being punished in the recent rotation out of tech, Jim said new investors can start to build a stake in the e-commerce and cloud giant around current levels. As always, start with a smaller stake to leave room to scale in over time. The stock isn't necessarily cheap, but so much is going right at the company. Broadcom : In our first 11 months owning Broadcom, its AI data center business has largely propelled the stock to impressive highs. Now the fruits of its VMWare acquisition, which closed late last year, are becoming impossible to ignore, offering a second wind for the stock. Best Buy : Trump's recent threat to impose tariffs certainly catches our attention considering some of the electronics Best Buy sells could be made in China. It would be too glib to say we're not concerned about a potential impact to sales, but we also recognize there's still an election to play out and the stepped-up tariffs are not a certainty. Costco : While Costco gets nearly 7% of its sales from China, Jim said it's unlikely its business would be threatened by geopolitics given the company's popularity in the country. Salesforce : The enterprise software maker's last quarter was not great, but over the long term the stock has proven itself to be a winner. It is well-positioned to unlock the power of AI for its customers, given their distinct data advantages. Coterra Energy : The oil-and-gas producer is a clear-cut winner if Trump wins in November. Earlier this year, the Biden administration paused approvals of liquefied natural gas exports. Coterra does well with bountiful export markets. Dupont : Jim said Dupont is a buy right here. A second Trump administration is likely to be more favorable toward mergers than the current White House, which would help Dupont as it embarks on a three-way breakup plan. Those soon-to-be standalone entities could become takeover targets. Danaher : The life sciences firm's business in China continues to be a drag on the company. At around 14% of sales, it's not so material that Danaher should be sold, but it's just big enough to put a cap on the stock's short-term potential. Walt Disney : We sold stock before the April proxy vote in case activist investor Nelson Peltz did not win, which proved prescient. Hindsight is 20-20, though, and exiting entirely would've been the better move. While we can't hide our disappointment, there's too much untapped value in Disney to abandon the stock here. Dover : The company continues to benefit from its exposure to megatrends like the clean energy transition. A Trump victory, however, means less environmental regulation. That won't stop us from staying in the stock. Climate change is real, Jim said, and the Club sticks with companies that are on the right side of history. Plus, continued investments in data centers will be a key driver for the conglomerate's growth regardless of who takes office. Estee Lauder : A formerly pristine franchise, the cosmetics firm remains in a challenging spot. Jim reiterated that he regrets not bailing on the stock earlier to fund higher-quality positions. Eaton : Jim maintained his long-term thesis on Eaton as shares declined 4% on Wednesday after Bloomberg reported that the U.S. could impose tougher trade rules around semiconductor tech. The market's reaction is overblown and, for now, mostly speculative. Eaton's exposure to data centers with offerings like power management solutions will serve as a multi-year tailwind for the industrial stock. Ford : The automaker is a winner with no real China exposure. Plus, it has excellent free cash flow, benefits from Federal Reserve rate cuts and still has the opportunity to implement a buyback like crosstown rival General Motors. Even with a strong move in recent weeks, there's a lot to like about Ford. GE Healthcare : The way the stock has traded lately suggests GE Healthcare is more exposed to interest rates than China liability. And if rates are going down in the coming months, that will make financing purchases of its expensive medical-equipment machines easier for hospitals and other medical facilities. Alphabet : Another victim of the tech rotation. While we have owned Alphabet and its other Big Tech peers for ages and don't want to get complacent, nothing in the recent sell-off is cause for long-term concern. Honeywell : Jim likes management's recent efforts to refine the conglomerate's sprawling portfolio to acquire more profitable businesses. He cited Honeywell's recently announced plan to purchase Air Products' liquefied natural gas business, which gives the company exposure to the rapidly growing data center space. Linde : This global enterprise has projects all across the world. Still, having an administration in Washington that's seen as more pro-business with less regulations stands to benefit Linde. Plus, the potential for lower interest rates and by extension more economic activity would benefit the industrial gas firm. Eli Lilly : The stock is getting hit Wednesday on competition concerns, not politics, after Roche released promising early stage trial data for a second obesity drug. However, investors should not lose sight of Eli Lilly's huge manufacturing lead that builds a moat around its GLP-1 franchise, which includes Zepbound for obesity and Mounjaro for type-2 diabetes. Stick with Lilly. Meta Platforms : The Facebook and Instagram parent has drawn the ire of Trump, and his vice presidential pick, Sen. J.D. Vance of Ohio, has been critical of Big Tech. More recently, Meta has been caught up in the great rotation out of tech. It's certainly been painful to watch the stock fall more than 13% in just a few days, but we don't believe this is a permanent move away from Meta and peers. Rotations happen from time to time. Morgan Stanley : The Wall Street firm's key investment banking division could see a boost in M & A and other deals under Trump's less stringent antitrust policies. In fact, we'd consider increasing our price target on the financial stock if Trump is sworn into office. Microsoft : Investors should remain long on shares despite its recent decline. Although it's not an ideal name to own in a declining interest rate environment, Jim said Microsoft still has an incredible franchise with massive growth prospects. The company's partnership with OpenAI, the creator of ChatGPT, along with new AI offerings such as Copilot, are prime examples. Nvidia : The leading AI chipmaker has been subject to geopolitical risks under the Biden administration due to export controls to China, and Trump's recent comments on Taiwan inject a new dose of uncertainty in this realm. But the long-term opportunity around generative AI hasn't changed. Nextracker : While a Republican administration would seem more hostile to clean-energy initiatives, it's important to remember that Nextracker's key customers are other companies with carbon emissions goals of their own. And bigger picture, given there is still more than 100 days to the election, it certainly makes sense to own a stock that could have an expanding multiple if Trump is defeated in November. Palo Alto Networks : This company is tied to one of the greatest secular growth themes: cybersecurity. Demand for Palo Alto's offerings continue to rise as incidents of hacks and virtual breaches do the same. Plus, shares seem to finally be out of the mud after its massive post-earnings drop earlier this year. Procter & Gamble : The consumer staples giant has been a rock-solid performer this year, but Jim said the company is worth a little less under Trump than under Biden because it sells products all over the world, including in China. Starbucks : China is an important part to the Starbucks story, but election risks are not the most pressing topic for the stock right now. Jim said he believes the misrepresentation of the company's views on the Israel-Gaza conflict is a bigger thorn in its side. The stock has been a major disappointment, but we're concerned about selling near the bottom, only to watch CEO Laxman Narasimhan pull a rabbit out of his hat and get the coffee giant back on track. Constellation Brands : There's no doubt that the Modelo and Corona parent is a less attractive stock under Trump compared with Biden. Nevertheless, we see plenty of reasons including an attractive valuation and a potential for an aggressive buyback to stick with the stock. Stanley Black & Decker : Trump's tariff threats -- where most of the company's products are sourced -- present a headwind for the stock. And although Stanley Black & Decker serves as the Club's most-important interest rate play, the firm will not be able to compete with tools not made in China. Investors may turn to peers like Home Depot or Lowe's , instead, to benefit from forthcoming easing of monetary policy. The Club offloaded shares of the retailer on Tuesday, rightsizing after a recent run higher. TJX Companies : We trimmed our position Friday after a great run for the stock. It does not operate in China, which minimizes its risk to heightened U.S.-China tensions. Still, price matters under a Biden or Trump administration, so we wanted to lock in profits to ensure we have room to buy back shares if they get hit in the future. Wells Fargo : Trump is a "bonanza" for the bank's shareholders, Jim said. The former president's soft stance on regulation presents a tailwind for the stock: the removal of Wells Fargo's' $1.95 trillion asset cap. Shares will see more upside once this is lifted, and the firm can grow its balance sheet further. Wynn Resorts : Wynn is the Club holding with the most China exposure, with its two key properties in Macau. The stock has struggled mightily since April, but Jim said he's hesitant to give it away at such depressed levels. (See here for a full list of the stocks in Jim Cramer's Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.