Stocks in the Crossfire of the Tariff Uncertainty

In investing, the phrase “this time is different” is dangerous. It leads people to ignore historical precedents and patterns.

But the last time tariffs overturned the stock market was 1930, when the Smoot-Hawley law was enacted.

In 1930, the television hadn’t been invented, nor the multiple streaming services on devices that we all now carry in our pockets.

In 1930, bad market news traveled by telegraph. Now, one tweet from President Donald Trump can send the market soaring or crashing in a matter of minutes.

So, it’s difficult to ignore the idea that “this time is different.” Our fast-paced, interconnected world operates completely differently from the 1930s economy.

The tariff drama roiling investors could still end in an economic disaster, like it did in 1930. Or, it could resolve in coming months, allowing the markets to resume the kind of upward trajectory we saw in 2023 and 2024.

No one has a crystal ball, tarot cards, or anything else that can tell them exactly what’s going to happen.

That’s why global macro investing expert Eric Fry is expecting the best while preparing for the worst – and I’m going to share his thinking and some of his picks with you today.

Fast Changes and Uncertain Outlooks

The last month has seen extreme swings in investor sentiment. That’s illustrated below by looking at the market’s “fear gauge,” the VIX. The market has been volatile since Inauguration Day, but the fear ratcheted higher since Trump’s tariff announcement on “Liberation Day.”

This past week has been especially volatile, as the market dipped after Trump tweeted he would like to fire Federal Reserve Chairman Jerome Powell for not enacting interest rate cuts quickly enough. A few days later, many of the losses were recovered when Trump said he had “no intention” of firing Powell.

One could get whiplash trying to track the markets moves so quickly.

Earnings reports that have come in this week haven’t provided much clarity. Even positive earnings reports are accompanied by uncertainty.

We’ve seen several big companies such as American Airlines, Southwest, Proctor & Gamble and Pepsi admit in forward looking guidance that they don’t know what’s coming. Here was a headline typical of the reports this week.

PepsiCo CEO Ramon Lagurta said in a statement, “As we look ahead, we expect more volatility and uncertainty, particularly related to global trade developments, which we expect will increase our supply chain costs,”

How Should Investors React?

In his most recent weekly issue of Eric Fry’s Investment Report, analyst Thomas Yeung notes that Eric is playing it straight, preparing for whatever comes next.

In our best-case scenario, the danger of a great recession (or depression) passes us by entirely. Trump’s tariff wars are resolved, leaving us with no major impact on inflation, supply chains, or long-term investor confidence. Instead, we’ll see enormous leaps in artificial intelligence, energy innovation, and biotech sending markets to new all-time highs.

We might also benefit from the re-onshoring of high-tech industries like advanced chipmaking and solar panel production.

In this case, we’re sitting on one of the decade’s greatest moments to invest. The recent selloff now puts the S&P 500 at just 18X forward earnings. Prices must rise 37.3% just to reach median levels and 65% to retake December’s mark. (That also ignores even greater upside in individual stocks.)

It’s easy to see why so many retail investors remain bullish on stocks.

But what if this time isn’t different and we face a trade war disaster like we saw in the 1930s?

Back to Tom:

In this case, a lot can go wrong. Perhaps the president will misjudge the inflationary impact of the current 125% tariffs on Chinese goods. That would force the U.S. Federal Reserve to tighten rates… triggering a showdown with President Trump. (On Monday, U.S. stocks fell around 3% over fears that Donald Trump could fire Fed Chair Jerome Powell.) 

Meanwhile, a lack of confidence is brewing. One in four auto loans are now underwater… consumer confidence is sitting at 12-year lows… and all this is happening while Wall Street predicts record earnings this quarter.

If these lofty Street expectations are missed, we’re looking at a “Wile E. Coyote” market where prices are running ahead without any fundamentals beneath their feet. 

Since no one knows how this will resolve, Eric is preparing for the worst, while continuing to hope for the best.

How to Play the Best-Case Scenario

Eric still believes in the AI megatrend and has picks in his portfolio that he believes will continue to grind higher. In the best-case scenario listed above, Eric likes Advanced Micro Devices (AMD).

Recommended in early March, it’s a great illustration of a company that has been on a wild ride since the tariffs were announced.

Here Eric on AMD when he recommended it on March 7.

Advanced Micro Devices Inc. (AMD) is a leading supplier of cutting-edge computer processors, and it has become a major player in many facets of AI technologies. Generally speaking, business is booming, but the company’s share price is not. This disconnect is creating a great investment opportunity.

AMD has been so successful at generating strong profit growth, and at expanding its market share in key markets, that it has become what I call a “brown bag” buy.

As I explained in my initial “Buy” alert last week…

If we pulled a brown bag over its logo, so that we did not know the company’s identity, nor had any idea what products it produces, the company’s raw financial performance would strongly tempt us to buy the stock.

But since we do know AMD’s identity, we know that it competes directly against Nvidia Corp. (NVDA) in an industry that is brutally competitive and deeply cyclical. Because of factors like these, investors have been dumping AMD stock for months, despite the company’s superb operating performance and bullet-proof balance sheet. The stock hit an all-time high of $213 a share exactly one year ago, and has tumbled more than 50% since then.

But down here around $100 a share, AMD has become too compelling to ignore.

A Stock to Play the Downside

Two weeks ago, I highlighted luxury brand Canada Goose Holdings Inc. (GOOS), as a new pick from Eric. If you’re not familiar with the name, GOOS is a global performance luxury and lifestyle brand like Patagonia and North Face. They manufacture and sell a range of outdoor sportswear like parkas, puffers, rain jackets, and hoodies – both for genuine outdoor adventurers and for urban chic wannabes.

This brand can withstand the trade war since it exports its goods to the U.S. duty-free. Under the U.S-Mexico-Canada Agreement (USMCA) President Trump signed during his first term, the U.S. levies no tariffs on apparel and textile exports from Canada to the U.S.

The stock is up a nice 15% since Eric picked it in early April.

We’re all waiting for a resolution to the tariff push, but until then, stick to your investing plan.

For Eric and his Investment Report readers, that means picking select stocks in the AI Megatrend, and stocks that can find themselves profiting despite tariff measures.

Eric has his finger on the pulse of a new project from Elon Musk that could make all the difference in the race to AI Dominance. You can learn more about the plan here.

Enjoy your weekend,

Luis Hernandez

Editor in Chief, InvestorPlace

P.S. Beijing’s plan to strike back at Trump goes far beyond tariffs.

China is putting a master plan in action that could lead to the end of American global leadership. But even though the media is focusing on Trump’s tariffs as his weapon of choice… Elon Musk is working on a secret project that could secure America’s dominance for years.  

You can read more about Musk’s new plan here.