Goldman Sachs (NYSE:GS) has a new battle plan for the trade war: Buy service-providing stocks and avoid goods-producing companies.
The strategy involves buying companies such as Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOGL)and J.P. Morgan Chase (NYSE: JPM) because the U.S.-China trade war has hurt share price and fundamentals of goods-producing companies.
"Services stocks have less exposure to trade conflict given they have lower foreign input costs that might be subject to tariffs and lower non-US sales than Goods firms," Goldman Sachs chief U.S. equity strategist David Kostin told clients.
The trade war between the U.S. and China escalated in recent weeks after President Donald Trump’s surprise announcement of 10% tariffs on the remaining $300 billion in Chinese imports that had eluded duties
Kostin went on to say services stocks including Facebook (NASDAQ:FV) and Verizon (NYSE:VN) have faster sales and earnings growth as well as more stable margins than goods firms. Services stocks have outperformed goods-providers by 530 basis points in 2019 and by 150 basis points in the third quarter.
Goldman Sachs also lowered its fourth-quarter growth forecaston Sunday by 20 basis points to 1.8%, citing a larger than-expected impact of recent trade war events.
The firm also says it does not expect a trade deal before the 2020 election.
GS shares toppled $3.95, or 1.9%, to $202.95
