trader writing taking notes

  • China escalated its trade dispute with the US on Monday, announcing retaliatory plans to slap 25% tariffs on US goods worth about $60 billion. 
  • Strategists and economists at Bank of America Merrill Lynch laid out their investing advice for the worst-case scenario: a “full-blown” trade war.
  • They advised buying quality companies that do most of their business in the US and are placed in defensive corners of the market. 
  • Visit Business Insider’s homepage for more stories.

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 on Friday, when tariffs on $200 billion worth of Chinese goods went up to 25% from 10%.

Stocks tumbled some more on Monday after China’s finance ministry said it would retaliate with up to 25% in tariffs 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 both countries would be subject to 25% in tariffs. An all-out war would also heighten the risk of a global recession.

BAML saw this worst-case scenario as unlikely prior to the latest act of retaliation by China, but 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.

SEE ALSO: Wall Street titans from Jamie Dimon to Jeff Gundlach are warning about a spike in volatility — and the worst bond-market auction in 10 years just raised the threat level

SIVB Financial Group

Ticker: SIVB

Sector: Financials

GDP Beta: -0.56

Source: Bank of America Merrill Lynch


American Electric Power Company

Ticker: AEP

Sector: Utilities

GDP Beta: -0.57

Source: Bank of America Merrill Lynch


BB&T Corporation

Ticker: BBT

Sector: Financials

GDP Beta: -0.57

Source: Bank of America Merrill Lynch


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