After falling sharply following ‘Liberation Day’ announcements, the stock market has been surging after news of a 90-day pause. But what happens after that?
As things stand, the tariffs that sent share prices down sharply are set to return. So investors need to think about what to do to prepare themselves and their portfolios.
The current situation
Where the stock market goes in July depends in large part on how negotiations between the US and its trading partners go between now and then. And investors have a few options available.
One approach is to wait and see if share prices fall again, presenting another chance to buy at a discount. The trouble is, if negotiations go well, this might not happen.
An alternative strategy is to buy while the market’s rising and look to take advantage of the recent momentum. But if negotiations go badly, this might prove to be a mistake.
Attempting to predict what might happen over the next 90 days looks very risky. Fortunately, I don’t think this is the most important thing for investors to consider right now.
Long-term investing
Ultimately, what investors need to focus on is how much cash a company is going to generate. And while tariffs are an important part of this, they’re not the only thing that matters.
Diageo (LSE:DGE) – a stock I’ve been buying recently – is a good example. Its biggest-selling product is Johnnie Walker – a scotch whisky – which means tariffs are a genuine risk.
Unlike Apple or Nike, Diageo can’t start producing scotch whisky in a different country. So it’s going to have to work around whatever the trade agreement between the UK and the US is.
Investors need to account for this, but it’s not the most important thing. Things like the company’s market position and long-term trends in alcohol consumption matter much more.
Outlook
I think Diageo shareholders have a lot to be positive about. Younger consumers might be spending less on alcohol, but the spirits category has been relatively resilient.
On top of this, the firm’s competitive advantages are still firmly in place. One of these is the scale of its distribution network, which puts it in a position to acquire smaller competitors.
A good example is Casamigos – the tequila brand founded by George Clooney. Diageo paid around $1bn for the business, which is a lot, but it’s an investment that’s worked out well.
While the company retains its ability to make deals like this successfully, I think it looks like an attractive stock. And this is what investors need to focus on.
Tariffs
If trade negotiations go badly, the stock market could crash in July. But investors should think about what this means for corporate profits, rather than share prices.
The Diageo share price has gone from £20.55 to £19.17 and back to £20.82 over the last week. There might be more volatility on the way, but I think the long-term outlook’s positive.
The company does business in around 180 countries, so it’s no stranger to import taxes. While the outlook for the share price might be unclear, I like it for myself and see it as a long-term investment for others to consider.
