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Signs of Progress in US-Sino Trade Talks Boosts These ETFs

Sanghamitra Saha
Harley-Davidson (HOG) delivered earnings and revenue surprises of 41.67% and 1.98%, respectively, for the quarter ended December 2018. Do the numbers hold clues to what lies ahead for the stock?

Providing little relief, President Trump recently talked about a positive development in his dealings with China over trade. However, he did not provide details. Trump and China President Xi Jinping are scheduled to meet in person at the G-20 summit in Argentina in late November.

U.S.-China trade tensions have peaked this year with the Trump administration enacting 25% tariffs on $50 billion of Chinese goods. In retaliation, China mainly targeted American soybeans along with other goods (read: China's Likely Retaliation to US Tariffs & Its Impact on ETFs).

The United States went on to levy more tariffs on Chinese goods worth $200 billion starting Sep 24. This will push up prices on goods ranging from handbags to bicycle tires, per the source. The tariffs, which started at 10%, will shoot up to 25% on Jan 1, 2019.

There were also reports that say that Trump is preparing more tariffs on imports from China worth $257 billion if talks with Xi Jinping see no success. Though nothing has settled on the trade resolution front (as noted by the National Economic Council), there was a certain level of confidence in the market lately.

Below we highlight two ETF areas that gained considerably on progress in U.S.-Sino trade talks.

Semiconductor

Semiconductor stocks gained the maximum since 2015 on Oct 25 after three Apple suppliers, NXP Semiconductors NXPI, Dialog Semiconductor DLGS and Qorvo Inc QRVO, came up with upbeat earnings. Since semiconductor is one of the most affected by the trade war, indications of positive trade talks soothed investors’ nerves (read: Why October Spells Doom for Semis: ETFs in Focus).

Per Morgan Stanley equity strategists, “semiconductor and semiconductor equipment companies have the highest revenue exposure to China at 52%” and are thus exposed to maximum risks on rising trade tensions. VanEck Vectors Semiconductor ETF SMH gained 4.8% Nov 1, iShares PHLX Semiconductor ETF SOXX advanced 4.7% and Invesco Dynamic Semiconductors ETF PSI rose about 4.3% (read: Apple's iPhone Order Cut Report May Hurt These ETFs).

Industrials

Industrial Select Sector SPDR ETF XLI added about 1.8% on Nov 1. Since the manufacturing sector has a direct relation to trade, the sector got a boost. Boeing Co BA (up 2.3%) and Caterpillar Inc CAT (up 2.8%) were among the companies that drove the space (read: Industrial ETFs in Focus Post Q3 Earnings).

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Qorvo, Inc. (QRVO) : Free Stock Analysis Report
 
The Boeing Company (BA) : Free Stock Analysis Report
 
PWRSH-DYN SEMI (PSI): ETF Research Reports
 
VANECK-SEMICON (SMH): ETF Research Reports
 
SPDR-INDU SELS (XLI): ETF Research Reports
 
ISHARS-PHLX SEM (SOXX): ETF Research Reports
 
Caterpillar Inc. (CAT) : Free Stock Analysis Report
 
NXP Semiconductors N.V. (NXPI) : Free Stock Analysis Report
 
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