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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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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