Volatility made a sizable return early Monday morning.
All after President Trump threatened to escalate a trade war between the U.S. and China – destroying any hopes investors had for a resolution to the dispute. In fact, on Sunday, he threatened to raise tariffs on imports from China from 10% to 25% after complaining that trade talks were moving along far too slowly.
In fact, he tweeted:
“For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday. 325 Billion Dollars of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!”
Some of the top sectors taking a hit on the unexpected news, include technology and industrial companies. Qualcomm (QCOM) for example fell as much as 2% on the day. Apple (AAPL) was down as much as 2%, as well. Micron Technology (MU) fell 3%.
Industrial stocks like Caterpillar (CAT) were trimmed by 2.5%. Deere & Co. (DE) dropped 4%.
According to the Oracle of Omaha, the trade war could be “bad for the whole world.”
“If we actually have a trade war, it would be bad for the whole world, and could be very bad, depending on the extent of the war,” Buffett said, but added: “There are times in negotiations when you talk tough. With some people in negotiations, the best technique is to act half crazy.”
Warren Buffett also noted that a full-scale trade war would be bad for everything that Berkshire Hathaway owns. Charlie Munger added that Trump was not “totally crazy” for wanting higher tariffs, but did note that a trade war would be “massively stupid.”
However, despite the volatility, Buffett did note that it would be “nonsense” for investors to sell stocks with negative headlines such as this.
Three Ways Investors Hedged for Volatility
Unless we see cooler heads prevail, we could see higher highs on the VIX in weeks, as we noted on May 2, 2019. As the VIX turns higher, some investors are seeking safety in the VelocityShares Daily 2x VIX Short Term ETN (TVIX) and the ProShares Ultra VIX Short-Term Futures ETF (UVXY).