After holding steady in the beginning of the week, the stock market pulled back once again today on macroeconomic issues. The beginning of the European Union (EU) election played a big role in the selling, but the U.S.-China trade war remains an issue for the market, too.
Regarding, the trade war, China’s Commerce Ministry spokesperson, Gao Feng, stated that negotiations would not continue until the U.S. “adjusts its wrong actions.” He didn’t specify exactly what those actions were, but his comments were enough to keep stocks in their downward spiral, with the Dow down more than 400 points by lunchtime.
The U.S. and China – the world’ two largest economies — have been going back and forth for a few weeks now. The volatility from a few weeks ago was triggered when China backpedaled on its previous promises regarding U.S. intellectual property and technology. In retaliation, President Trump increased in tariffs on $200 billion worth of Chinese goods. Tariffs on another $300 billion in Chinese imports is also anticipated.
The reason there’s a problem with the China negotiations is because they’re dragging their feet. China doesn’t respect patents, trademarks or intellectual property rights, which is why we’re seeing this epic battle over 5G.
China’s 5G company, Huawei, has a backdoor on its 5G technology that allows it to spy on everybody. And it’s not just the U.S. If the United States lets China take over 5G, then it could cause some serious issues. China has a plan that by 2025, it will take over certain industries. So, it looks like the Trump administration has drawn the line in the sand at 5G.
You see, 5G is a big deal. Once this technology is here, your smart device data will be gathered, analyzed and managed at a higher degree. This will allow for more Internet of Things (IoT) products, self-driving cars, revolutionized systems, and so much more. It will take the internet to an entirely new level. (You can read more about the potential in 5G here.)
So, the Trump Administration hit Huawei with a one-two punch that will restrict its 5G business in the U.S. Of course, the fight with China over privacy and intellectual property is far from over. All eyes will now be on the upcoming G20 meeting in Japan when Chinese President Xi and President Trump are expected to meet privately. It will be interesting to see what is accomplished at this meeting and in the upcoming months, as both sides want a new trade deal.
It will take time for this issue to be resolved, but at the end of the day I expect the U.S. will win. Keep in mind that the Chinese retaliation was only on $60 billion of goods, which is pretty small considering our $200 billion in tariffs. The Trump administration is showing that it’s willing to compromise, as it removed the metal tariffs on Mexico and Canada, so there’s no more tariffs on steel or aluminum. And then, Canada and Mexico dropped tariffs on U.S. dairy products. So, President Trump is willing to negotiate. He’s also trying to appease those who might be hurt by the Chinese tariffs.
Smart investors don’t let down market days affect their investment plan.
So, I recommend using today’s volatility as an excellent opportunity to buy the dip. However, it’s important that you buy companies with solid fundamentals, earnings and sales growth, as those will be the ones that weather this type of selling the best.
In fact, one of my Growth Investor companies, Copart, Inc. (CPRT), climbed up over 6% after reporting an earnings beat this morning.
Total revenue increased 15.7% year-over-year to $553.1 million, beating estimates for $537.76 million. Third-quarter earnings soared 51.3% year-over-year to $192.7 million, and earnings per share jumped 55.8% year-over-year to $0.81. That crushed analysts’ estimates for earnings of $0.62 per share by 30.6%. So, it’s no surprise to see it up today.
This is a great example of why you should be investing in these types of companies. They will hold up well even if the market is not. I have one such opportunity in the 5G space that has great fundamentals and should see strong earnings and sales growth, and I expect it to be one of the 5G leaders. You can learn more about it here.