A trade war with China is imminent and that means a potential end to the 9-year bull market. While there are large ebbs and flows in the market, there will always be winners and losers. Yes, even in bear markets there are winners and hopefully the following areas will get you thinking about ways to work around trying times in the stock market.
The information below is provided by Investopedia's article "3 Sectors to Buy in a Trade War." The stocks mentioned are provided by Investopedia's staff and are not official recommendations of GradMoney. They are merely mentioned as way to get readers to think about your investment choices in a potentially difficult market. We hope you will be able to navigate difficult markets effectively.
Here are the three areas to strongly consider putting your money in advance of the trade war...
Small caps stand at the top of this elite list, explaining why the Russell 2000 Index broke out to an all-time high in May. However, choosing the right plays here is harder than it looks. While many domestically focused businesses will be less affected by foreign affairs, those dependent on rising material costs may find it harder to grow revenues. As a result, it makes sense to focus attention on service-oriented groups like healthcare, software and entertainment.
What's Looking Good?
Glu Mobile Inc. (GLUU) makes mobile games for smartphones and tablets. It came public at $11.50 in March 2007 and posted an all-time high at $14.80 in June. The subsequent decline picked up steam during the economic collapse, dropping to an all-time low at 22 cents, while a bounce into 2011 stalled at $6.10. The stock has spent seven years testing that resistance level, with the sixth rally into the barrier now in progress. Excellent volume support in recent months raises the odds for a breakout that brings the double digits into play.
Biotechnology stocks could shine if tariffs are thrown up around the world because many of these companies have no commercial products, with their value driven by speculation rather than income. Traders have taken notice of this unique advantage in recent weeks, lifting the SPDR S&P Biotech ETF (XBI) above $100 for the first time in its 12-year history. Keep in mind that "going local" is the key theme here, avoiding larger drug companies that depend on foreign sales.
What's Looking Good?
Fate Therapeutics, Inc. (FATE) develops cellular immunotherapies for cancer and immune disorders. The stock topped out at $13.55 in March 2014 and entered a downtrend that continued into February 2016's all-time low at $1.46. A slow-motion recovery wave caught fire in December 2017, reaching the four-year high in March. The rounded consolidation since that time has nearly completed a multi-year cup and handle breakout pattern that may support a measured move target into the mid to upper $20s.
U.S. automakers could plummet during a trade war, cut off from foreign revenues while North American supply disruptions trigger a nightmare scenario with material costs. It's assumed that consumers will buy General Motors Company or Ford Motor Company vehicles if tariffs are thrown up on foreign autos, but rising sticker prices could trigger an exodus into the used car market, with the few publicly traded sector plays offering excellent upside potential.
What's Looking Good?
CarMax, Inc. (KMX) operates 189 used car facilities in 41 states. The stock ended a multi-year uptrend in the mid-$70s in April 2015 and sold off for 10 months, finding support at a three-year low in the low $40s. The subsequent bounce completed a round trip into the prior high in October 2017, giving way to a reversal that reached support at the 200-week exponential moving average (EMA). An April bounce has continued into late June, lifting the stock within four points of the 2017 high. It will complete a multi-year cup and handle pattern when it finally reaches that resistance level, with a breakout targeting $100 to $110.
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