Why Retail Stocks Are Rocking on Tuesday

Trump's trade rep appeared to relent on Chinese tariffs, and stock markets are rejoicing.

Rich Smith
Rich Smith
Aug 13, 2019 at 2:30PM
Consumer Goods

What happened

Shares of some of America's most popular retail chains got a shot in the arm this morning (the good kind, not the one that makes your kids cry). President Donald Trump's U.S. trade representative announced new caveats today, applying to the latest round of 10% tariffs that may (or may not) be applied to Chinese imports to the U.S. come September.

There's word of a potential delay (to Dec. 15) on the imposition of tariffs -- on cellphones, laptop computers, toys, clothing, and other items -- combined with the removal of other items from the tariff list, and the announcement of a process for excluding even more items. These factors helped lift shares of retailers such as Bed Bath & Beyond (NASDAQ:BBBY), Best Buy (NYSE:BBY), Dollar Tree (NASDAQ:DLTR), Michaels (NASDAQ:MIK), and Target (NYSE:TGT) by anywhere from 5% to over 10% in early trading Tuesday.

Two arms shaking hands over a world map, one with a sleeve displaying the U.S. flag and the other displaying China's

Image source: Getty Images.

So what

But could these be the kind of "easy come, easy go" gains (and losses) that we've come to expect from news concerning President Trump's tariff tantrums? I kind of think they are.

Remember, this administration was for tariffs on Canada and Mexico before it was against them. Similarly, tariff threats against China have been invoked, then recanted, multiple times over the past couple of years. Perhaps investors are recognizing that this latest development could be little more than a negotiating tactic, as easily retracted as it was enacted; shares of all five of the retail stocks named above are already beginning to shed some of their gains from earlier in the morning.

As of 11:05 a.m. EDT, shares of Bed Bath and Beyond are only up 0.4% (down from an earlier gain of 5.9%). Michaels is holding onto only a 1.2% gain (it surged 10.4% earlier), while Dollar Tree's 8.1% sprint higher has been essentially halved -- back down to 4.9%.

Best Buy may be the company most likely to benefit from the removal of electronic items from the tariff list, though, and Target from the removal of toys; they remain up 5.8% and 3.2%, respectively.

Now what

How is a lone individual investor supposed to react to such a topsy-turvy world, in which trade tariffs can jerk stock prices around so much and so abruptly? Honestly, I can't think of a better time to remind investors of Warren Buffett's timeless advice to "be fearful when others are greedy and ... be greedy only when others are fearful."

When Wall Street reacts with irrational exuberance to a tariff cut that you just know isn't as good news as it sounds, that's a great time to sell some stocks and take some profit. On the other hand, when new tariffs jolt the market into a fear state, that could be a wonderful time to do some buying.