BREAKINGVIEWS-Trump trade shock boosts the drab autarky trade

By Sebastian Pellejero

NEW YORK, April 4 (Reuters Breakingviews) - Donald Trump’s tariffs are a chaotic attempt to reshape global trade. They’re also upending recent stock-market orthodoxy. The shock of far-higher-than-expected levies dragged the S&P 500 Index .SPX down 5% on Thursday — the worst day since 2020. Heretofore easy bets on racy technology stocks have lifted most boats. Now, a search for safety from the president’s arbitrary whims might revive the art of value investing.

There’s much wreckage to pick through. A 10% tariff on U.S. trading partners, higher on countries from China to Switzerland to Vietnam, would drastically raise costs and has already sparked retaliation, with the People's Republic announcing its own levies on American goods. All this will crimp growth and profit margins. Stocks of tech giant Apple AAPL.O, reliant on global supply chains for its iPhone, and planemaker Boeing BA.N, the biggest U.S. exporter, both sank over 9%. As further consequences become clear, pain will spread.

Companies fitting Trump’s vision of domestic self-reliance might seem safe harbors. But wildly febrile policy and markets – the CBOE Volatility Index .VIX has nearly tripled since November – make idle punts risky. What’s needed is a keen eye for companies sporting cheap valuations relative to their augmented potential. That’s roughly “value investing,” the strategy of spotting real bargains from aberrations.

Lately, high-flying tech names — not boring stocks with low valuation ratios — have thrived as investors jumped on the artificial intelligence-fueled hype train. This strategy is value’s opposite: momentum. Over the past decade, the S&P Momentum Index delivered 14% annualized returns, double its value counterpart.

There are glimmers of a shift. Tire-maker Goodyear Tire & Rubber’s GT.O stock suffered a one-third decline in the year before Trump’s tariff unveiling. On Thursday, it gained 12%. It runs eight domestic factories and dozens more for other markets. In the U.S., replacement tires – perennial necessities regardless of new car purchases – accounted for 82% of 2024 sales volume. And a share price of just 6 times expected earnings, according to Visible Alpha, trails peers Michelin MICP.PA and Bridgestone 5108.T.

Similarly, frozen potato giant Lamb Weston LW.N slumped 48% over the year to Thursday, when it jumped 10%. Over 67% of sales come from the U.S., supplied by domestic facilities, an opportunity as the world’s fourth-largest potato importer punishes trading partners.

Investors have preached the strength of spuds and tires before. Rabble-rousing hedge fund Elliott Management started its push for changes at Goodyear in 2023, while Jana Partners showed up at Lamb Weston last fall. Yet both stocks are flat since the respective announcements. Greater appreciation for their humdrum virtues is needed. Trump’s stunning trade broadside might bring such substance back in vogue.

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CONTEXT NEWS

The S&P 500 Index and NASDAQ Composite fell 4.8% on April 3, one day after U.S. President Donald Trump said that the United States would impose a baseline tariff on all imports and higher rates on many of the country's biggest trading partners. The CBOE Volatility Index, regarded as a gauge of investor fear, surpassed 39 points, higher than its 10-year average.

On April 4, China’s Finance Ministry said it will match Trump’s plan for 34% tariffs on goods from China with its own 34% tariff on imports from the U.S.