Auto stocks are caught in the crossfire of the trade war again
General Motors and Ford were slammed Friday, falling 3%, after China resumed a 25% tariff on U.S. autos beginning December. Any trade deal became even more distant after President Donald Trump tweeted that U.S. manufacturers should “immediately” look for alternatives to China.
“There is too much uncertainty around the auto sector, especially in the U.S. to call any of these stocks a buy right now,” Bill Baruch, president of Blue Line Futures, told CNBC’s “Trading Nation ” on Friday.
GM, for example, would have to fall back to $32 to offer good value, he adds. GM would need to fall by 11% to get to that level.
Instead of directly investing in them, Baruch says he has an “interesting” way to gain exposure to the U.S. automakers.
“Take a look at the ETF RXI — Toyota is the number three name in there, and then it’s surrounded by Amazon, McDonald’s and Home Depot, and that gives you a way to diversify without idiosyncratic risk,” said Baruch.
The RXI global consumer discretionary ETF holds U.S. and international stocks in the sector — GM and Ford make up 2% of the fund.
“That has a good support line coming in at $112, as the chart would show, and the 200-day moving average is there. So I think that’s a good place to look to get some exposure in autos,” said Baruch.
The RXI ETF is trading nearly 2% above the $112 level of support.
Steve Chiavarone, portfolio at Federated Investors, says Chinese tariffs should not impact U.S. automakers in too detrimental a way. However, he does see one thing that is impeding operations.
“When you think about the tariff issue here, you know [Friday’s] announcement is not a big deal. The bulk of their business is done in the United States,” Chiavarone said Friday. “The bigger deal might be what comes [next from the Trump administration], because they are importing a lot of goods — steel, aluminum. It’s the import tariffs that are really hurting this group, not so much the export tariffs into China.”
Disclosure: Federated’s Global Allocation Fund owns Ford.
