As uncertainty over the outcome of Sino-American trade talks grows, so does the possibility of longer-than-expected negotiations or an all-out trade war.
The Trump administration has laid the groundwork to unexpectedly increase duties on $200 billion in Chinese imports to 25% from 10% at 12:01 a.m. Eastern Time on Friday. That escalation has prompted strategists at Goldman Sachs to offer some timely trading strategies, if trade negotiations, set to kick off on Thursday, break down.
The investment bank’s analysts, led by chief equity strategist David Kostin, are recommending that investors target services firms, which they describe as less exposed to trade policy (including retaliatory moves) and have better corporate fundamentals, as a group that could help to insulate investors from tariff-fueled volatility.
Goldman expects companies within services to outperform those that provide goods, including consumer products and hardware, like iPhone maker Apple Inc. AAPL, -1.39% and Johnson & Johnson JNJ, +0.23% for example. Shares of Apple have gained nearly 30% this year, while those for J&J are up 8.8%.
The analysts say that within the services sector, software companies, media and entertainment names, and retailers and banks, could be solid investment bets.
More specifically, the bank spotlights Google-parent Alphabet Inc. GOOG, +0.16% GOOGL, -0.03% Microsoft Corp. MSFT, +1.30% and Amazon.com Inc. AMZN, -0.52% as top names. Shares of Alphabet’s class A and C shares are up by about 13% so far this year, those for Microsoft are up 24%, while Amazon shares have climbed 28.4% over the same period.
Underlining their point, Goldman analysts included a chart showing the relative performance of services against returns for goods during periods of escalating U.S.-China trade tensions.