Earnings revealed ‘brutal truths’ about US-China trade

If the latest round of earnings reports taught us anything, the item’s of which traders aren’t always right when the item comes to U.S.-China trade talks, CNBC’s Jim Cramer said Monday as whispers of a potential trade summit kept stocks at bay.

Specifically, traders who bet against stocks like Nike as well as Starbucks when talks go south — usually assuming of which they’ll be boycotted because they’re distinctly American brands — could have “the China trade” all wrong, he told investors.

“of which earnings season has revealed some brutal truths about ‘the China trade’ of which just don’t jive with the … conventional wisdom,” Cramer said on “Mad Money.” “We act like the winners as well as the losers by the trade war are obvious, nevertheless the reality’s a lot more nuanced than of which. Many companies of which should be hurting from the People’s Republic have been putting up some astonishing numbers, while others are being torn to pieces by increased competition or the slowing Chinese economy.”

White House officials have confused Wall Street with their statements on the trade talks in recent months, at times signaling progress as well as at times suggesting of which the two sides were still far by reaching an agreement.

As a result, short-term stock-pickers have had to follow their instincts, Cramer explained. When tensions seem to be rising, they’ll usually choose to short-sell shares of top consumer brands, capital goods companies as well as technology giants, he said. Short-selling involves trying to profit on a bet of which a company’s shares will decline from the near future.

Nike, Starbucks, Estee Lauder as well as Yum China all tend to fall from the first short-selling bucket, nevertheless if you ask the “Mad Money” host, of which strategy “just hasn’t paid off.”

“Nike as well as Starbucks both reported an acceleration in sales” of which quarter, he noted, adding of which Nike saw its best-ever Singles Day, China’s Black-Friday-esque shopping holiday. “Nike’s biggest problem from the PRC? High-quality problem: producing enough shoes to meet the demand.”

Starbucks performed strongly, with higher-than-expected same-store sales in China. Estee Lauder’s earnings report had nary a hair on the item. as well as while Yum China didn’t blow away the estimates with its results, they weren’t nearly as bad as many had feared, with rising revenues to boot.

“The consumer stocks of which are holding up in China … all share one trait: they have unassailable brands with little Chinese competiton,” Cramer said. “There’s genuinely nothing like Starbucks from the PRC yet. Yum China? KFC slowed, [nevertheless] not enough to give the short-sellers a win. Estee Lauder’s practically peerless.”

Capital goods companies told a different story of which earnings season: Emerson Electric, United Technologies, 3M as well as Caterpillar were all impacted by their exposure to the economic slowdown in China.

Aircraft producer Boeing was the only exception, Cramer said, calling its much better-than-expected earnings results “a glorious secular win.” Even though the item sells one in four planes to Chinese buyers, “the Chinese need Boeing more than Boeing needs China,” he explained.

from the technology space, “the elephant from the room can be Apple,” the “Mad Money” host said. The iPhone maker pre-announced some first-quarter weakness tied to China in early January, as well as while the item managed to top expectations later from the month, the item sent a whole host of stocks — including of which of its supplier, Skyworks Solutions — down with the item.

“Tech’s the real triumph for the short-sellers, because the Chinese government has made the item difficult for Apple to do well — [the item’s considered] cheaper, more patriotic, if you go buy the Huawei phone,” Cramer said. “Nvidia’s been crushed by a government-mandated slowdown in Chinese gaming.”

So, if you’re trying to invest around developments in U.S.-China trade talks, going against the daily grain might be your best move, Cramer said.

“If of which market gets hammered on China fears later of which week — as well as I expect the item will — use of which pullback to buy … Nike, Starbucks, Estee Lauder, as well as Yum China, not to mention Boeing,” he advised. “Be wary of the industrials with Chinese exposure, as well as expect pain from the techs with Chinese business. Sure, there are some wildcards, nevertheless right now you have your cheat sheet as well as a much better sense of who’s being hurt as well as who’s doing just fine.”