When it comes to tariffs there aren't two economies, there are three economies and two out of three ain't bad.
That's really the best way to look at how there could be such a disparity in the market today with the Nasdaq hanging and the industrials getting clobbered. We've got the domestic economy, which isn't going to be hurt much by tariffs and is overrepresented in the Nasdaq. We have the international economy and the companies that dominate that scene overweighted in the Dow and S&P, and we have the technology stocks which have emerged as relatively risk free from the retaliation we have to expect from the countries that just got hit with aluminum and steel tariffs by President Trump.
Today's decision to put those tariffs on, an outgrowth of the Chinese government's overproduction of steel which is then shipped to countries all over the world which then dump it here, have rocked the industrial and financial worlds.
The industrials are naturals to be slugged in the gut by tariffs from countries as wide ranging as Canada, Germany, and Mexico, as their steel exports and aluminum exports will now be hit by a 25% and a 10% duty as of midnight. The tariffs are a bit of a surprise because there had been debate about exemptions to the tariffs and the exemptions didn't pan out. Our markets got hammered when the surprise tariffs were first issued but then recovered when the temporary exemptions were granted. So it stands to reason that our industrials would get rocked again because of fears of retaliation. Our bank stocks also got hit, most likely because of a reduction in world trade will produce less commerce, something that the banks depend on for more business.
The other day I railed about how Italy shouldn't have brought our markets down so hard given our lack of exposure to that country and its finances. In fact, I think that anything that brings more money here - and Italian problems can do that - is good for our stocks not bad for them.
I think it's quite the opposite when it comes to tariffs. First, they very much matter because tariffs, even if you think they are right, and I am in favor of steel tariffs because of the rapacious nature of the Peoples Republic, will impede trade. That's just bad for stocks except for the steel makers as they don't make much aluminum here, and we only have a handful of steel makers. I don't think the president's people would disagree. The camps in the White House are those who want higher profits for companies and therefore don't want anything that makes our raw materials more expensive or could lead to retaliatory tariffs in return, and those who say that lower profits are the price we have to pay to support an industry that plays by the rules and will otherwise be wiped out. This camp would remind us that there's something bigger than the stock market, namely national defense and important job creation and we need to suck it up and accept it.
Now we know that the domestic stocks have been very strong and there I am including the retailers which are quintessentially domestic, the smaller business that don't export much, and the professional services entities that support those businesses. If their stocks are in the S&P 500, they could be pulled down today, but would bounce back the moment that the S&P is reset to adjust to the tariffs.
The domestic-international dichotomy plays out each time we have tariff talk.
This time, though, there is something both new and astonishing. This time technology stocks that are tethered to the cloud and the internet of things are going higher, not lower, as if investors have decided that their wares will not be retaliated against so why not sell the industrials and the banks and take the proceeds and buy them. Still other stocks are actually the unintended beneficiaries of European rules and are acting incredibly well because of it.
Let's start with the latter because their performances are so stark. Let's start with Alphabet (GOOGL) and Facebook (FB) . The Europeans just put through new privacy rules, known as GDPR, and they require the reader to give consent to see ads. If you are Alphabet, which owns Google, you can't trust some smaller sites who happen to compete with the companies in Google's vetted marketplace. So the business just falls to Google. Facebook's in an analogous situation. The big guys have figured it out and know how to comply. Talk about the one thing that the European regulators didn't want to happen. But it's given our big web companies the breaks and there are no tariffs to be found on Google or Facebook.
Then there are plenty of companies that are involved with onboarding enterprises to the cloud. We call them the cloud kings, companies like Salesforce (CRM) , Workday (WDAY) , ServiceNow (NOW) , Adobe (ADBE) , Red Hat (RHT) , VMware (VMW) . We would include New Relic (NEWR) which helps monitor web sites to be sure they are working right.
All that said I don't want to be too glib here. Canada right out of the gate said it would retaliate against the U.S. dollar for dollar. I expect Europe to do the same thing. There will be plenty of companies that will see their numbers cut as their goods will no longer be economic versus those of the home countries. At the same time there will be plenty of companies here that import products with foreign aluminum or steel and they will see their numbers cut.
Now I want to make something clear. The tariffs that just came down aren't big. We won't notice the costs. But we don't know where they will stop. Our president says he is trying to make up for the poor trade management of previous presidents and of trade policies that have historically hurt the American people. I would come back and say that some people in this country have inordinately benefited while others have inordinately been hurt. If you care about people paying less for goods in the aggregate you are against tariffs. If you work in industries that have been destroyed by countries creating jobs at the expense of our own jobs then you are pro-tariff. There are far more in the former group than the latter or you would expect the market to go up not down on this news.
But let's forget about the aggregate for a second. This is Mad Money not Mad Trade. You want to make money off this news? You want to benefit? The single biggest beneficiary, and the most deserving one, is Nucor (NUE) , the nation's largest steel company. For years Nucor has had to deal with steel dumped here, chiefly by the Chinese through these other countries that got hit by the tariffs. Nucor has done everything it can to lower the cost of its raw product and improve its manufacturing expense. It is the most efficient steel maker on earth. But there's no level playing field. The Chinese government subsidizes its steel to the point that Nucor has a hard time competing with various grades that the Chinese are producing.
This steel tariff is the fair way to allow Nucor to keep building plants and hiring people. The fact that the stock's barely up has more to do with the overall decline in the market than it does with anything being wrong at Nucor because its earnings are going to go higher because of this ruling.
So my suggestion is that you are being given a gift to buy the stock of the one real corporate winner in this whole fracas, Nucor, and you should take it before someone else does.