Even as the Trump administration backed off from hitting Canadian and Mexican imports with immediate tariffs on all products, new aluminum and steel tariffs are set to hit these key trading partners of the U.S., and President Trump has said more trade measures are coming, covering more countries.
The 30-day reprieve for Canada and Mexico kicked the can down the road, but Trump's comments over the weekend about the metals tariffs, and previous threats about European Union tariffs, leave the concern level elevated among investors and advisors. It is also leading to new conversations about how to prepare portfolios for the next tariff deadline, and a decision that could go the other way this time.
While Canada and Mexico were off the hook for now, before the steel and aluminum moves, the broader trade war is underway with China. Last week, the U.S. slapped a 10% tariff on Chinese imports, and China hit back with a 15% tariff on some U.S. goods, as well as a 10% tariff on others.
John Davi of Astoria Portfolio Advisors told CNBC's "ETF Edge" on Feb. 3 that he believes there is an opportunity for investors, but it takes a different mindset and investing outside of the big-cap tech stocks that have been a major stock market driver. "Tariffs are, by nature, inflationary," said Davi. "Investors should start to allocate toward these real asset sectors," David added.
Recent data shows inflation is still above the Federal Reserve's stated target of 2%. Even if tariffs don't show up in the data, they are likely to raise prices for Americans.
Chicago Fed President Austan Goolsbee warned of the inflationary pressure of tariffs. He said the Federal Reserve "will take into account anything that raises prices" when it comes to monetary policy. Boston Fed President Susan Collins also raised the issue in an interview with CNBC's Steve Liesman on Monday.
VettaFi's Todd Rosenbluth cautions that the stock market is not fully taking into account the potential impact of tariffs and higher prices. "This is something investors and advisors are not fully prepared for," he said.
Davi's firm is trying to look at sectors that benefit from inflation. "Energy, industrials [and] materials" are a focus for Astoria Portfolio Advisors as the firm "picks the highest quality stocks in those sectors" for its AXS Astoria Real Assets ETF PPI.
S&P Energy is up roughly 2% over the past month. The sector is being led by Marathon Petroleum, Texas Pacific Land Corporation and Valero. All three are up more than 20% from recent highs.
The S&P Materials sector is flat this week, but up about 6% over the past month. Newmont, Nucor and Eastman Chemicals are the leader during that period.
The S&P Industrials is up roughly 5% over the past month led by GE Aerospace, 3M and Delta Airlines.
Rosenbluth is telling investors to look at "real asset" stocks and sectors. He suggested VanEck's Inflation Assets ETF RAAX, which has rallied amid the tariff drama hitting the markets. It is an ETF that investors in other ETFs, the biggest components are the VanEck Merk Gold Shares, VanEck Commodity Strategy ETF and the VanEck Energy Income ETF. The RAAX is up roughly 5% over the past month, outpacing a 4% gain for the S&P, though recent earnings buoyed the broader market.
