Markets

Here's where to hide as market tanks amid intensifying trade war

Key Points
  • CNBC used Kensho, a hedge fund analytics tool, to find the best-performing exchange-traded funds when the S&P 500 tumbled at least 10% in one month in this 11-year bull run.
  • The S&P 500 has tumbled more than 5% since Trump imposed additional tariffs on China. The sell-off deepened after China retaliated by allowing its currency to drop to 7 against the dollar.
  • The iShares 20+ Year Treasury Bond ETF managed to gain more than 7% on average during the past pullbacks, while the SPDR Gold Trust climbed more than 5% on average.
  • Utilities have been the best S&P 500 sector when the market is in turmoil.
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For investors looking to take shelter in a trade war, there are pockets of the market that have done well during huge market pullbacks in the past.

The U.S.-China trade war has stocks in free fall with surprise tariffs and currency devaluations.

The S&P 500 has tumbled more than 5% since President Donald Trump imposed additional tariffs on China on Thursday. The sell-off deepened on Monday, with the Dow Jones Industrial Average having its worst day of the year, after China retaliated by allowing its currency to drop to 7 against the dollar for the first time since 2008. The S&P 500 had just hit an all-time time of 3,025.86 on July 26 before it all went down.

CNBC used Kensho, a hedge fund analytics tool, to find the best-performing exchange-traded funds when the S&P 500 tumbled at least 10% in one month in the 11-year bull run (leveraged ETFs are excluded from this analysis.) The stock average had undergone four corrections in this record-long bull market. The last time was in December 2018 when the Federal Reserve hiked interest rates.

Bond and gold funds stand out as top performers as a major sell-off in equities would spark a flight-to-safety move. The iShares 20+ Year Treasury Bond ETF managed to gain more than 7% on average during the past pullbacks, while the SPDR Gold Trust climbed more than 5% on average.

The iShares Silver Trust, VanEck Vectors Gold Miners ETF and Vanguard Total Bond Market ETF also showed strong resilience in market downturns in the past.

Gold is already showing its strength, hitting its highest level since 2013 on Monday.

CNBC also looked at sector performance to see which sectors are relatively safe during a market correction. Utilities have been the best S&P 500 sector when the market is in turmoil. The sector, usually a defensive play, lost 4.3% on average in past corrections.

Consumer staples, also defensive in nature, also held up relatively okay, losing 7.5% on average when the S&P 500 tumbled 10% in one month.

Wall Street analysts are seeing little relief for stocks anytime soon. J.P. Morgan said equity markets could still be in for a few more weeks of pain before an eventual rebound, while Morgan Stanley said a recession will be here in 9 months if the trade war escalates further.