Why the North Korea threat could still take down stocks

Economic pressure that could be placed on China by the U.S. as a way of confronting the nuclear situation in North Korea may have a detrimental impact on stocks ahead, one portfolio manager warns.

President Donald Trump, in a Sunday tweet, said the U.S. would consider halting trade with "any country" doing business with North Korea. This would include China, the nation's largest trading partner. Such a sanction against China would impede on multinational corporations' activity in the country, weighing on earnings and growth, said Chad Morganlander, portfolio manager with Washington Crossing Advisors.

These developments could have a "washback effect on S&P 500 earnings, as well as growth expectations for not only 2017, but also for 2018," he said Wednesday on CNBC's "Trading Nation."

Furthermore, Trump's latest suggestion for resolving nuclear tensions with North Korea has escalated the rhetoric, "regardless if it is 100 percent intentional or just a negotiating tactic," he said.

"If there is a trade dispute with China, you can see issues with many multinational companies like Apple, [which] has manufacturing facilities within China and also depends on the Chinese consumer for the next leg of growth," he said, adding that Chinese consumption around retail has been "enormous," and will continue to grow.

Morganlander pointed to companies such as Nike and Boeing, which could also be exposed to "this type of trade issue, because growth rates are expected to accelerate for many of these companies in the next several years because of the massive consumption pattern within China, as well as the entire emerging markets."

When U.S. markets reopened Tuesday after a long Labor Day weekend and reports of North Korea's nuclear test, the Dow Jones industrial average, S&P 500 and Nasdaq Composite all logged their biggest one-day drop in three weeks. The price of gold, a traditionally safe haven asset, rallied.

Chinese President Xi Jinping told Trump on Wednesday that China is focused on solving nuclear-related issues through peaceful means.

Reuters reported that Beijing expressed doubts that economic sanctions against China would resolve the issue.


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Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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