Associated Press
President Donald Trump waves as he steps off Air Force One after arriving, Friday, June 7, 2019, at Andrews Air Force Base, Md. (AP Photo/Alex Brandon)
- Ongoing US-China trade tensions are still a major wildcard that investors have to grapple with, strategists and economists warn, even as markets respond positively to the Mexico tariff suspension.
- "Potent risks" surrounding trade talks around the G-20 summit later this month are still on the table, one strategist said Monday.
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President Trump's announcement that his administration suspended tariffs on Mexican goods shouldn't be interpreted as a sign risk has evaporated from the marketplace, strategists and economists warned clients Monday.
Trump's late Friday announcement boosted global stocks and depressed traditionally safe-haven assets like gold and US Treasurys. Equity markets in the US jumped, with the Dow Jones Industrial Average rising 170 points, while popular exchange-traded funds tracking the price of gold underperformed the market.
Auto stocks like General Motors and Ford, highly exposed to volatility across the US-Mexico supply chain, outperformed, along with the semiconductor space.
But trade tensions with key trading partner China remain a headwind, investment advisors said. In addition, consumer confidence has already taken a hit. And uncertainty tied to how talks at the G-20 summit in Japan later this month will pan out looms over the market.
"Potent risks are still on the horizon," Vinay Viswanathan, a derivatives strategist at Macro Risk Advisors, told investors Monday in a note, pointing to trade talks around the summit later this month.
Those risks, combined with the VIX - the market's "fear gauge" - rising alongside stocks Friday, led Viswanathan to recommend investors hedge their exposure to stocks with a strategy that would protect against downside.
Read more: Global stocks are surging after Trump cancels Mexico tariffs
His recommendation was emblematic of other warnings sent out across Wall Street.
"Policy volatility has not dissipated over the weekend," Sam Rines, the chief economist at Avalon Advisors, told clients on Monday. "With Mexico scratched off the list (for now), it is worth remembering that China and the EU are still in the tariff mix."
Domestically focused small-cap stocks are particularly vulnerable at this juncture despite the absence of an immediate Mexico tariff threat, said Lori Calvasina, the head of US equity strategy at RBC Capital Markets in New York.
"Though tariffs on Mexico appear to be off the table, thanks to a deal with Mexico over the weekend, we still see risk of downward revisions to Small Cap estimates due to the escalation of the tariffs on China and the damage that has likely been done to corporate confidence over the past month due to uncertainty over the direction of trade policy generally," she said in a Monday note to clients.
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The stock market will "remain choppy" until the next corporate earnings season when businesses have taken tariffs into consideration, Calvasina added.
On an industry-specific level, select stocks in the energy space could benefit from the tariffs' suspension as US gasoline exports to Mexico comprise 60% of total exported gasoline, Credit Suisse told investors. US refiners like Valero and PBF Energy, which both surged Monday, are two names on which the firm is particularly bullish.
Other investment experts expressed skepticism Monday that markets could sustain more Trump- and trade war-induced volatility.
"Phew, a self-imposed supply chain crisis averted," Peter Boockvar, the chief investment officer at Bleakley Advisory Group in New Jersey, told investors Monday.
"What a relief but I gotta tell ya, now that the threat of tariffs can be thrown around like nothing, I don't believe a multinational business with factories and supply needs globally can ever rest easy until this stops."
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