It’s time to hold some cash in your portfolio — the trade war is starting to get real

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The Trump administration is looking to impose 25% tariffs on $200 billion of Chinese goods. The previous proposal was for 10% tariffs.

Many investors are not as concerned about the trade war as they ought to be. The reason is that they look at the charts of Dow Jones Industrial Average












DJIA, -0.46%










S&P 500 ETF












SPY, -0.03%










Nasdaq 100 ETF












QQQ, +0.37%










and small-cap ETF












IWM, +0.26%










Those charts do not show much damage from the trade war.

Prudent investors ought to look at this most important chart, and it may change your mind.

The chart

Please click here for the chart of Mainland China ETF Xtrackers Harvest CSI 300 China A ETF












ASHR, -2.32%










The chart shows ASHR dropping 29% from its peak.

Could the same happen to U.S. stocks? It is not likely but not impossible. Many individual stock portfolios are heavily concentrated in popular tech stocks such as Apple












AAPL, +2.55%










Amazon












AMZN, +0.52%










Facebook












FB, +0.89%










Google












GOOG, -0.43%











GOOGL, -0.41%










and Netflix












NFLX, -0.11%










Apple is especially vulnerable if the situation with China gets much worse. Please see “Apple stock’s next milestone is $250 as the company makes a crucial transition.”

Amazon, Facebook and Google do not have much exposure to China, but they’re still vulnerable if the broader market drops.

Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.

Two stocks to watch

U.S.-based investors may want to closely watch Boeing












BA, -1.47%










and Caterpillar












CAT, -0.42%










Professional investors are keeping a close eye on those two stocks as a proxy for the trade war.

What to do now

Investors ought to consider raising more cash and putting on more hedges. This morning we raised cash and hedge levels. At The Arora Report we use the ZYX Global Multi Asset Allocation Model with 10 inputs to determine our cash levels and hedges. In general, investors ought to be holding enough cash and hedges so that they do not panic and sell near the bottom in a correction. Please see “Emotions are getting the best of stock market investors.”

Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article. Nigam Arora is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.



Source : MTV