Trade War Selloff Sends Investors Seeking Shelter Close to Home

Not even the penguins were spared last week when President Trump unveiled across-the-board tariffs on more than 180 countries, including the biggest US trading partners and remote islands home to mostly flightless birds.

Major stock indices sank in response, with the S&P 500 notching its biggest single-day decline in market value since the onset of the pandemic on Thursday. US Treasury yields fell, gold’s rally stalled, and the US dollar — usually stronger amid turmoil — weakened.

There’s No Place Like Home

The greenback isn’t looking like much of a refuge lately, though it’s supposed to be, in good times or bad. Economic theory and history say the value of the dollar rises relative to other currencies on higher tariffs. Explanations abound for the change in behavior: A surprise upset in the outlook for growth and fears that the US dollar was poised to fall given its rich valuations, and currency traders finding a better deal in Japanese yen in the immediate aftermath of market shock, to name two. Or chalk it up to a loss of confidence in US economic policy because tariff-rate calculations didn’t exactly math.

Meanwhile, stock investors are finding some level of safety in defensive pockets of the market. Consumer staples, healthcare, and utilities outperformed the S&P 500 last week. These sectors have historically fared better than others during economic downturns and are viewed as somewhat “recession-proof” because they peddle products and services that folks don’t skimp on in good times or bad. Think groceries, medical care, and whatever keeps the lights on at home.

Wall Street strategists last week offered up other options that could provide shelter from the tariff-induced market jitters:

• Morgan Stanley’s chief US equity strategist, Mike Wilson, recommended looking for companies that have the scale and negotiating power to mitigate tariff risk. “This all leads us back to large-cap quality as the key factor to focus on when picking stocks,” he said in his weekly market podcast.
• “Insurance stocks remain technically attractive and have avoided much of the recent weakness,” FSInsight’s head of technical strategy, Mark Newton, said in a note, recommending the SPDR Insurance ETF (KIE) be “overweighted” within the financial sector.

Insensitivity Training: Meanwhile, Goldman Sachs’s equity strategists published what they called the “Insensitive Portfolio,” a list of 45 stocks that are less likely to swing with the market, up or down. PG&E (PCG) and CenterPoint Energy (CNP), medical equipment-makers Boston Scientific (BSX) and Thermo Fisher Scientific (TMO), as well as grocery chain Kroger (KR) fit the bill, according to the firm.