Our market is tumbling deep into the red this morning with just about every sector losing ground on news that top US economic advisor Gary Cohn has kissed president Donald Trump goodbye at a time when the US is considering slapping additional trade sanctions on China.
The S&P/ASX 200 (Index:^AXJO) (ASX:XJO) has steadily fallen from the opening bell with the index down close to 1% in late morning trade. US stock futures have also tumbled by around the same amount, which means US stocks are probably going to slump when trade begins later tonight.
Mr Cohn's departure is seen as a big blow to free trade as he was regarded as a stabilising force in the Trump administration, which is now dominated by those with a strong nationalist agenda.
The resignation comes at a time when president Trump is considering clamping down on Chinese investments and broadening the tariffs on Chinese imports to punish its Asian trading partner for alleged theft of US intellectual property (IP), according to a Bloomberg report.
The biggest threat to our market is a trade war and investors have every right to worried. Stocks leveraged to global trade are taking the brunt of the sell-off with the likes of Brambles Limited (ASX: BXB) tumbling 2.4% and Qantas Airways Limited (ASX: QAN) diving 1.6%.
Higher commodity prices overnight have done little to save our big miners like BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO), while shares in our big four banks like Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corporation (ASX: WBC) were sold off due to the sector's reliance on offshore funding.
Markets were already anxious about Trump's tariffs on steel and aluminium and I think the downside pressure on markets this time round will be more persistent with Cohn's departure. There's also the fact that Trump has the power to unilaterally impose sanctions on China without passing Congress.
You can bet China will respond and some are even suggesting that the Asian giant could dump its vast holdings of US government bonds to teach Trump a lesson! I regard that as the "nuclear" option equivalent for trade as that could cripple the US economy (taking the rest of the world down with them no doubt).
This nervous environment is good news for our gold miners. They are one of the few rare bright spots on our market today with Newcrest Mining Limited (ASX: NCM) jumping 2.7% and Evolution Mining Ltd (ASX: EVN) not far behind with its 2.4% rally.
However, the broad-based sell-off hides a silver lining. It's an indication of indiscriminate selling that is driven more by sentiment than fundamentals.
This is a good time to be picking up stocks that are relatively insulated from any US-China trade war. Granted, there aren't many stocks that won't be directly squeezed in some way, but it's wrong to think that there won't be any stocks worth buying in the market mayhem.
There is one sector that the experts at the Motley Fool are particularly bullish about that won't be directly impacted by global trade wars.
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