Analysts are hesitant to change stock calls during trade war: 'It can all change with a tweet'

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Pricing in a trade war is hard enough, but it’s being made even more challenging by having to account for President Donald Trump’s Twitter feed.

Markets are recovering now from the latest episode in which the president has made policy via social media, announcing a week ago that he intends to enact tariffs on all Chinese goods.

The move didn’t exactly come without warning, as the two sides had been saber-rattling for weeks, but it still caught markets off guard and exemplified how at the mercy both investors and corporate America are at Trump’s Twitter whimsy.

Trade policy “can all change with a tweet,” analyst Scot Ciccarelli at RBC Capital Markets said in a note to clients in which he explained his reluctance to change his market calls with regard to tariff expectations.

“We have been hesitant to swing around ratings on tariff risks and empathize with our investor partners, given the fluidity of the situation, since the narrative can shift violently with a simple tweet,” he added.

Trump has been largely quiet on trade since last Thursday’s developments, and the markets have begun to slowly recover from a dip that took nearly 5% off the major averages. There’s no telling what could happen next, but investors at least are moving as if there are no more immediate threats.

So rather than change company ratings, Ciccarelli is partitioning stocks on how they would do “if cooler heads prevail” against the case where “trade tensions increase.”

On the side of companies that will benefit if the trade war eases his list includes Advance Auto Parts, Five Below and Home Depot. Should things get worse, those he favors include Walmart, Tractor Supply and Ollie’s.

The burden of the ‘half-baked’ tweet

Ciccarelli is not alone in his hesitance to commit due to the fickleness of whatever Trump might decide to rattle off.

Canaccord Genuity analysts pointed out the disadvantages in a note on Merit Medical Systems, whose fortunes had been linked to a “half-baked POTUS tweet on Mexico.”

“Given companies have but a single tweet to go off, making projections is an exercise in futility given the lack of specific detail; companies have virtually no basis from which to make forward looking decisions at this point,” the firm wrote regarding a previous threat to implement new tariffs if no deal with Mexico was reached.

The lack of a clear direction and Trump’s willingness to make major publicity statements is clouding the picture for both investors and corporate executives.

Anthony Scaramucci, who runs the Skybridge Capital hedge fund and briefly served as the White House communications director, said CEOs “don’t know where things are going.”

“We’re at war with China now. It’s a full-blown trade war,” Scaramucci said Thursday on CNBC’s “Squawk Box.” “The White House should really tell people what the plan is and what we’re going to do. By the way, because of the lack of predictability on the tariffs, you have slowed down capital investment.”

That in turn feeds into larger fear that the trade issue with China, while small in terms of dollars at risk, could turn into something more.

“You have a collision of a rising power and a waning power,” said Walter Zimmerman, chief technical analyst at United-ICAP. “What happened over these last couple of weeks is just the warning shot over the bow of a much bigger problem.”

—CNBC’s Michael Bloom contribute to this report.

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