(New York)

The stock market is in knots this week. The trade war between the US and China is increasing in intensity even as the two sides negotiate. This morning it hit a new peak as Trump hiked tariffs on $200 bn on Chinese goods. With the trade war looking more likely to continue, Goldman Sachs has recommended what it says are the best stocks for an all-out trade war. The general idea from David Kostin’s team at GS is to buy service firms, which are less exposed to tariffs and have better corporate fundamentals. Here is a list of the companies in Goldman’s selection group: Facebook, Visa, Bank of America, Walt Disney, Home Depot, Netflix, McDonalds.

FINSUM: This is an interesting mix of large and mega caps and we agree with Goldman’s simple, yet compelling thesis.

(Washington)

President Trump followed through on his threats today, hiking tariffs on China to 25% across $200 bn worth of goods. The move came as US and Chinese negotiators have not been making much progress in talks. Beijing has vowed to retaliate, but the talks between the two nations are continuing. Trump reinforced that there was no need to rush on a deal. Stocks opened lower on the news.

FINSUM: This certainly does not seem like good news and we are starting to think it may be some time before a real deal happens, which means the issue may continue to loom over the market.

(New York)

Bond ETFs ae set to break a landmark record this year—$1 tn in AUM. The number is a big deal for bond ETFs, which got off to a slower start than their equity counterparts. In recent years, though, bond ETFs have seen huge inflows as they allow investors a more liquid option for both strategic and longer-term allocations. The market is also seeing a good deal of innovation, with more nuanced approaches spreading much like they have in equities.

FINSUM: Overall this is excellent news for investors. More AUM means more liquidity, more options, and lower costs. There are still some fears about a liquidity mismatch between the ETF and the underlying blowing up during a crisis, but those have never materialized.

(New York)

One the most brutalized stocks on Wall Street is going through a renaissance. The agricultural stock Mosaic has been beat up lately. The fertilizer specialist has been hammered because of weakness in crop prices and corresponding falls in fertilizer. Shares are down 18% this year. The company just released earnings where it cut profit forecasts and then something amazing happened—it surged 7%. Analysts and the market suddenly decided the stock was too cheap. One JP Morgan analyst summarized, saying “Mosaic has been a poor equity performer over a one, three, five, and 10 year period … And we think the shares are now priced to create a favorable risk-reward balance”.

FINSUM: This is a classic blood-in-the-streets type purchase, but the stock is so cheap compared to almost every valuation metric that there does seem to be asymmetric risk to the upside.

(Washington)

The Fed has a big new worry that is not presently on the market’s radar. With all the worries about headline economic data and the trade war, very little attention has been paid to the potential shock equities and bonds may feel from climate change. The Fed, however, is very focused on the risk. The Fed says that climate change can have a jarring effect on the economy that may “affect national economic output and employment”. “As such, these events may affect economic conditions, which we take into account in our assessment of the outlook for the economy”, says Fed Chairman Powell.

FINSUM: Calculating climate risk is tough because it can have short-term effects, but also much longer and more challenging ones, such as migration and agricultural output. That said, no one is expecting a climate change-induced financial crisis.