On May 2, CNBC reported that the United States and China may jointly declare the much-awaited trade deal by this weekend. President Trump and his Chinese counterpart Xi Jinping could sign the deal later that month or the first week of June.
In this regard, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin visited Beijing last week. As a follow up to the procedure, Chinese vice premier Liu He will likely visit Washington in the week of May 6, for the last round of negotiations. Notably, on Apr 4, President Trump twitted that a trade deal with China is possible in the next four weeks.
National Security Concerns Dominate Trump’s Decision
The Trump administration is gravely concerned about China’s drive to unseat the United States as the primary developer and supplier in the fields of high-tech sophisticated products. The implementation of tariffs stems from the Trump administration’s concern that China is leaving the intellectual property of the American companies vulnerable to theft.
On Mar 27, Reuters reported that China has made unprecedented proposals on a range of issues including the protection of U.S. intellectual properties to resolve the trade disputes. On Apr 4, White House economic advisor Larry Kudlow claimed that China has acknowledged for the first time that the United States has legitimate and genuine concerns about IP theft, forced technology transfer and cyber hacking by Chinese companies.
Trade War Upsets Global Economy
On Apr 9, the International Monetary Fund reduced its global economic growth forecasts for 2019. The new growth projection is 3.3% compared with 3.5% in January and 3.7% in October. For the IMF, the prevailing trade conflict between the United States and China is the key concern for the global economy.
Wall Street witnessed extreme volatility throughout 2018 primarily owing to trade-related issues. However, U.S. stock markets turned around impressively since the beginning of 2019 once positive trade-related developments started.
Technology Sector to Benefit Most
China is the largest trading partner of the United States. A strong economy in China, the largest market for high-tech products, will give U.S. technology companies a solid boost. Moreover, China plays the role of a low-cost supplier of intermediary products and other inputs to high-tech U.S. industries.
In 2018, the Trump administration levied tariffs on Chinese imports worth $300 billion in two phases. Most of these products are from the high-tech industrial sectors. U.S. companies that rely on Chinese imports are unhappy about the move, which pushed up prices of high-tech equipment and several electronics products.
An end to the U.S.-China trade spat is likely to restore Chinese and global economic growth, which in turn will create demand for high-tech U.S. products. Likewise, the repeal of tariffs on Chinese intermediary goods should raise the profit margin of U.S. tech giants. Moreover, clinching a lasting agreement with China, which will strictly protect U.S. intellectual properties, will be immensely beneficial for the home-grown tech behemoths.
Our Top Picks
At this stage, it will be prudent to invest in technology stocks. We have narrowed down our search to five such stocks each carries a Zacks Rank #1 (Strong Buy) and strong growth potential. You can see the complete list of today’s Zacks #1 Rank stocks here.
Cadence Design Systems Inc. CDNS provides software, hardware, services and reusable integrated circuit design blocks worldwide. The company has an expected earnings growth rate of 12.3% for the current year. The Zacks Consensus Estimate for the current year has improved 2.4% over the last 60 days.
Ciena Corp. CIEN provides network hardware, software, and services that support the transport, switching, aggregation, service delivery, and management of video, data, and voice traffic on communications networks worldwide. The company has an expected earnings growth rate of 30.2% for the current year. The Zacks Consensus Estimate for the current year has improved 2.3% over the last 60 days.
CommScope Holding Co. Inc. COMM provides infrastructure solutions for communications networks worldwide. The company has an expected earnings growth rate of 24.7% for the current year. The Zacks Consensus Estimate for the current year has improved 30.4% over the last 60 days.
Guidewire Software Inc. GWRE provides software products for property and casualty insurers worldwide. The company has an expected earnings growth rate of 21.1% for the current year. The Zacks Consensus Estimate for the current year has improved 6.2% over the last 60 days.
Upland Software Inc. UPLD provides cloud-based enterprise work management software in the United States, the U.K, Canada, and internationally. The company has an expected earnings growth rate of 29.4% for the current year. The Zacks Consensus Estimate for the current year has improved 3.8% over the last 60 days.
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