US markets: The stocks hit hardest by trade war

interactive investor's head of markets explains what's moving US markets and who's really feeling the pain. 

August was hardly the traditionally quiet month for markets.

It started with a bang as President Trump tweeted that the administration would be imposing 10% tariffs (later upped to 15%) on $300 billion worth of Chinese imports at the beginning of September.

Some of the sting was later taken out, as he announced on the 13th August that the US would be delaying imposing tariffs on some imports from China until 15 December because of "health, safety, national security and other factors".

The products include mobile phones, laptops, video game consoles, some toys, computer monitors, and certain footwear and clothing, with Trump saying that the delay was, in part, to avoid hurting US consumers in the lead up to Christmas.

However, the consumer is a vital part of the US economy, accounting for two-thirds of economic activity, and any weakening in spend will naturally filter through to company profits, with retailers in particular in the potential firing line.

In addition, some of the forward-looking consumer sentiment indices have also turned lower, as more of the general population digest the implications of the trade spat.

As such, over the month analysts have been turning their attention to those retailers who are likely to fare better (and worse) because of the ongoing turmoil.

Retailing companies have also been warning of potential profit hits as the new tariffs come into force, and their share prices during August suffered accordingly – Best Buy shares were down 7% in the month, after they advised that about 60% of their cost of goods sold comes from China, although they were working to reduce that to 40% next year.

Elsewhere, in light of similar potential concerns, Abercrombie & Fitch (NYSE:ANF) shares lost 17% (after announcing that it had cut its full-year sales forecast in anticipation of the new tariffs), while Macy's (NYSE:M) plunged 31%.

Investors have therefore been looking towards resilient retailers, particularly those of scale and/or those whose geographical reach is spread, allowing for supply chains to be moved to countries other than China at relatively short notice. In addition, where prices can be held steady, thus having limited impact on margins or demand, such retailers fared well during the month.

For example, it is estimated that The Home Depot (NYSE:HD) and Lowe's Companies (NYSE:LOW) are well-positioned, as they rely on China for less than 10% of their goods sold – as such, both enjoyed a strong August, with Home Depot shares adding 7% and Lowe's up 13%.

Additionally, some of the heavyweight retailers such as Walmart (NYSE:WMT) and Target (NYSE:TGT) are also seen as being able to adjust their global supply chains, not to mention using their size to squeeze suppliers if necessary. Walmart also stated that it had raised the prices of some of its items due to tariffs but was not passing all the cost pressure it faces on to consumers.

These almost defensive qualities added to the attraction of both stocks during the month, with Walmart adding 4.4% and Target – in particular demand after its quarterly update, when it boosted its full-year profit outlook, even after accounting for potential additional tariffs   – surging 31%.

Another example of the benefits of scale came when over 200 footwear companies wrote to President Trump warning that the upcoming tariffs would exacerbate uncertainty and could drive up prices in other countries that produce footwear, given limited production capacities. Bellwether Nike (NYSE:NKE) was unmoved by this statement, however, and ended the month of August 4% higher.

For all the rhetoric, which will naturally continue to unfold, and for all the volatility in prices which accompanied August, the S&P 500 still managed to post a 2% gain for the month, and remains 17% ahead in the year to date.

There is little doubt, however, that these ongoing exchanges between the world's two largest economies are starting to chip away at investor confidence, while the global economic implications are serious.

The US is treading a fine line, China has shown that it is not slow to retaliate where necessary and a resolution of these issues is becoming more of a necessity, and less of a wish, in order for markets to continue to prosper.