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"Trade war" portfolio: 4 stocks to watch

Trade war fears with China
Trade war fears with China 01:46

Stocks have swung wildly in recent weeks as Wall Street responds to the deepening trade rift between the U.S. and China. 

Stocks were rattled badly last week as this dynamic intensified, dipping as President Trump said he was considering another $100 billion tariffs, and then sinking quickly when Treasury Secretary Steve Mnuchin acknowledged the "potential" for a trade war. But markets cheered on Tuesday after Chinese President Xi Jinping gave a speech promising to ease trade barriers.

If you want to get a read on how investors are sizing up the state of trade talks with China, zero on these four: Boeing, Caterpillar, Deere and Tyson. They've suffered larger losses than the overall market when tensions are high, and enjoyed larger gains when talk shifts to "negotiation." 

Take four "trade freakout" days: March 1, March 22, April 2 and April 6. A basket of these four stocks fell an average of 3.2 percent, versus a 2.1 percent decline for the S&P 500. 

On "trade relief" days -- March 7, March 8, April 3, and April 5 — they rallied 0.9 percent versus 0.6 percent for the S&P.

Consider Boeing. Commercial aircraft sales are arguably the single most important manufactured export category for the U.S. into China. In fact, when Trump visited China last November, one of the trade "gets" was a $37 billion order from China Aviation Supplies Holding Company for 300 Boeing planes.

On March 1, Boeing shares fell 3.5 percent, compared with a decline of 1.5 percent for the S&P. That was the day Trump announced sweeping tariffs on steel and aluminum.  On March 22, the day the White House $50 billion in tariffs in China, Boeing fell 5.2 percent, versus a 2.5 percent drop. 

Trump defends proposed tariffs as markets tum... 07:54

The moves were similar for the other three stocks in our "trade war" portfolio. Caterpillar and Deere are both exposed to a possible slowdown in heavy equipment sales to China as well as a possible drag on U.S. farmers, with Beijing threatening a tariff on U.S. soybean exports. Animal protein producer Tyson would be hurt by China's threat of tariffs on American pork. 

Mr. Trump's economic team are in a tough spot. They have to acknowledge that the threat of tariffs is real while simultaneously stressing that negotiations are ongoing with the aim of a peaceful -- and profitable -- outcome. 

To know which part investors are focusing on, track our four stocks. 

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