Bernstein analysts recommend a “barbell approach” to navigate the escalating US-China trade war, balancing exposure to tech, discretionary, and financial stocks while staying mindful of macroeconomic risks.
The US has imposed 10% tariffs on all Chinese imports, while China responded with tariffs on US coal, LNG, oil, and autos. Bernstein notes that the US is more reliant on Chinese imports than vice versa, with China having diversified trade relationships since the 2018-2019 trade war.
During the previous trade war, US markets gained while China’s declined, with defensive sectors outperforming. However, analysts caution that this time, the macro backdrop—higher US bond yields, a stronger dollar, and China’s deflationary pressures—makes past strategies less effective.
Bernstein estimates a 0.13% inflation impact on the US from new tariffs but sees potential for tech, discretionary, and financials to benefit from reasonable valuations and improving sentiment.