There are tons of unknowns in the financial market right now.
Between the threat of an added 10% to 25% tariff on Chinese apparel, toys and electronics coming into the U.S., whether the U.S. will see more interest rate cuts, and therefore how much upside the stock market has for the medium-term, investors need to manage risk with precision.
So About Those Tariffs
How much more could stocks lose of Trump places more tariffs on China? "It really depends on how hard hitting that $300 billion really is in terms of those tariffs, because we always have exceptions and there's always a way to carve out on that, and certainly I don't really see it actually happening," Hillary Kramer, chief investment officer of Kramer Capital Research said. Basically, Kramer was saying some goods will be exempt, some will receive lighter tariffs, and some goods will be hit hard.
With the S&P 500 still up 18% year-to-date, some may think stocks could have more downside if the tariffs go into effect. While Kramer said the impact may not be so rough, she doesn't even think they'll happen. "We really aren't going to see the tariffs slapped on," Kramer said.
Either Way, Buy the Banks?
Simply put, investors need to figure out what companies are best positioned to cut through the macro headwinds. While banking isn't traditionally thought of as that sector, especially as falling interest rates hurt their net interest margins, Kramer advises buying the banks. "Banking," she said, without missing a beat, as the banks can do business internationally and in different capacities.
"The big international banks like Goldman Sachs (GS) that have everything from private equity to an entree into even individual banking, M&A, the capital markets. They can do cross border global deals because now you have so many of the players from Europe who are essentially out of the game, you know, whether it be Deutsche Bank (DB) or HSBC (HSBC) , you know, Goldman Sachs is really filling the void," Kramer said.
About those interest rates, she added, "but be insulated to a great extent from interest rates and continue to have revenue streams from all different angles. Of course, you also have banks like JP Morgan (JPM) . You know, I'm always looking at the credit quality. I'm always looking to see how that's looking. And there are no cracks yet in a place like JP Morgan."
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