Stock market investing strategy for full-blown trade war: BofAML – Business Insider

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The stock market’s seemingly unstoppable rally was halted last week when one of the biggest risks reared its ugly head again.

President Donald Trump’s tweets vowing to escalate the trade dispute with China erased more than $1.4 trillion in market value. He made good on his threats Friday, when tariffs on $200 billion worth of Chinese goods went up to 25% from 10%.

Stocks tumbled some more Monday after the Chinese Finance Ministry said it would retaliate by raising the rate of tariffs to as high as 25% on US products worth about $60 billion.

The situation has yet to devolve into what many economists would call a “full-blown” trade war. In that scenario, according to Bank of America Merrill Lynch, nearly all goods exchanged between the two countries would be subject to tariffs of 25%. Such a scenario would heighten the risk of a global recession.

BAML saw this worst-case scenario as unlikely before the latest act of retaliation by China, but it laid out its investment advice to clients just in case. If there’s a full-blown trade war, you’ll want to own high-quality, domestically oriented stocks in parts of the market that are likely to outperform, the firm said.

The list below is a starting point. It includes BAML’s screen of buy-rated stocks with 0% foreign sales, meaning all their business is conducted in the US. It’s arranged in descending order of their beta, or sensitivity, to gross domestic product. The more negative the beta, the less reactionary a stock is to declines in GDP.

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