By Noel Randewich
SAN FRANCISCO (Reuters) - President Donald Trump's aggressive stance and often mixed signals in his trade war with China are taking a toll on the shares of U.S. companies that are most reliant on the world's second largest economy.
U.S. stocks rose more than 1% on Monday after Trump predicted a U.S.-China trade deal following remarks by Vice Premier Liu He, who has been leading the talks with Washington, that China was willing to resolve their dispute through "calm" negotiations.
On Friday, the S&P 500 tumbled 2.6% after Trump announced an additional duty on some $550 billion of Chinese goods in retaliation for Beijing's announcement of more tariffs of its own earlier in the day. Trump also sent a tweet demanding U.S. companies seek alternatives to doing business with China, but appeared to back off the threat on Sunday.
Escalating uncertainty related to Trump's intentions regarding the year-old trade conflict is adding to pain on Wall Street, where investors are worried that tariffs could tip the U.S. economy into a recession.
GRAPHIC: U.S. stocks and Trump's trade war - https://fingfx.thomsonreuters.com/gfx/ce/7/6106/6089/Pasted%20Image.jpg
"This trade war is having more plot twists than a Quentin Tarantino movie," OANDA senior market analyst Edward Moya wrote in a research note. He added that higher and wider tariffs will punish U.S. consumers and potentially hobble the U.S. economy.
GRAPHIC: U.S. stock market and trade - https://fingfx.thomsonreuters.com/gfx/ce/7/6105/6088/Pasted%20Image.jpg
A basket of companies impacted by the trade war, created by Barclays, has sharply underperformed the S&P 500 this month after tracking evenly with the broader market for the three previous months. Barclays' basket includes companies that rely heavily on Chinese imports and are likely to face profit-margin pressure from tariffs, such as Apple <AAPL.O>, Nike <NKE.N> and Honeywell International <HON.N>.
GRAPHIC: Barclays basket - https://fingfx.thomsonreuters.com/gfx/mkt/12/5210/5167/China%20exposed%20stocks%20under%20pressure.png
U.S. semiconductor stocks have also underperformed this month. Micron Technology <MU.O>, Qualcomm <QCOM.O> and Qorvo <QRVO.O> each get 50% or more of their revenue from China. Consumer electronics and other products made with semiconductors will be included in additional U.S. tariffs, starting on Sept. 1 and Dec. 15, the U.S. government said this month. The Philadelphia Semiconductor index has lost almost 6% in August.
GRAPHIC: Chip stocks take a hit - https://fingfx.thomsonreuters.com/gfx/mkt/12/5208/5165/Chip%20stocks.png
Trump's widening trade war and China's slowing economic expansion have hurt several other U.S. industrial and material companies that in recent years have relied on China to drive their growth.
Detroit automakers General Motors Co <GM.N> and Ford Motor Co <F.N> cut their full-year profit forecasts due to escalating tariffs. Caterpillar Inc <CAT.N> recently said tariffs on Chinese imports are expected to increase its material costs by up to $200 million in the second half of 2019.
GRAPHIC: U.S. industrials and materials hit by trade fears - https://fingfx.thomsonreuters.com/gfx/mkt/12/5209/5166/Industrials%20and%20materials.png
"The path forward is not at all certain and, like hanging at the beach too long, investors could get burned by the next 'surprise' announcement," Kingsview Asset Management portfolio manager Paul Nolte warned in a note to investors on Monday.
"Or a cool breeze could come up and all will be right with the world. It truly is anyone's best guess."
(Reporting by Noel Randewich; Editing by Alden Bentley and Sonya Hepinstall)