Over the past several months, some of the weakest sectors of the U.S. stock market have been those considered the most exposed to escalating tensions between the United States and its major trading partners.
Thus far this year, the materials sector XLB, +0.90%[1] has lost 1.1% while the industrials category XLI, -0.28%[2] is unchanged; both have severely underperformed the S&P 500 SPX, +0.09%[3] , which is up 7% over the same period.
These losses have come amid a volley of protectionist policies from multiple countries. President Donald Trump has announced, threatened, or imposed tariffs on billions of dollars worth of products, including automobiles from the European Union and a variety of steel and aluminum products from the EU, China, and other countries. Many of these tariffs have been met with retaliatory measures. In the most recent, China on Wednesday announced new tariffs covering $16 billion worth of goods.
More detail: Trade-war tracker: Here are the new levies, imposed and threatened[4]
The imposed tariffs are already seen as having a negative impact on corporate profits[5], and extended uncertainty or any further escalation could amplify the negative impact on supply chains, corporate profits and share prices.
Such trends would likely be felt broadly across the economy, but the pain would be concentrated in sectors that are either directly targeted by tariffs, have higher raw material costs, or that have higher revenue exposure to overseas countries. According to UBS, such sectors may include machinery stocks, steel companies and semiconductor firms. It named 34 stocks it ranks among the most impacted, including Deere & Co. DE, -3.43%[6] , Macy’s Inc. M, +1.86%[7] , U.S. Steel Corp. X, -0.78%[8] , Qualcomm Inc. QCOM, -0.01%[9] , Freeport-McMoRan Inc. ...