“War is mainly a catalogue of blunders.”

Those words were uttered by British Prime Minister Winston Churchill, one of my personal heroes. In addition to being a fearless leader, Churchill was a talented wordsmith. To gear up his nation against the Nazi war machine, Churchill first weaponized his words.

During the long-running Sino-American trade war, we’ve seen a catalogue of blunders. And words (often in the form of tweets) have been destructive weapons in the fight.

As I write this, a pivotal exchange of words is taking place. The U.S. and China on Thursday started two days of trade talks in Washington, DC, with the goal of negotiating a truce.

Stocks this week have been volatile, as investor hopes rise and fall according to perceived progress of trade discussions. Yesterday, stocks rose on signals that China was open for a deal, whereas earlier in the week stocks tanked when Chinese officials responded belligerently to Trump’s provocations.

Stocks opened mixed on Thursday morning, bouncing between gains and losses in choppy trading as investors tried to digest conflicting signals on trade.

Here’s my take: Curb your enthusiasm about this week’s trade discussions. Chances of success don’t look good.

China is censoring access to NBA games because of supportive statements made by players on behalf of Hong Kong protestors. The U.S. is blacklisting China-based high technology companies. And next week, U.S. tariffs on $250 billion worth of Chinese goods are scheduled to rise to 30% from 25%.

Trump won’t make any concessions that would rile his political base and President Xi Jinping can’t afford to look weak, either. We’re looking at trench warfare.

The trade war’s toll…

President Trump infamously tweeted last year that “trade wars are good, and easy to win.” But the record so far shows otherwise:

• Tariffs already in place will cost the average American household $1,000 per year, according to a recent study by JPMorgan Chase (NYSE: JPM).
• Bankruptcies among U.S. farmers are rising, as China cancels soybean and corn orders and devises ways to do without U.S. imports of those crucial crops.
• Deutsche Bank (NYSE: DB) analysts estimate that tariff worries have generated $5 trillion worth of lost stock market returns.
• Tariffs implemented by the Trump administration have so far cost U.S. companies $34 billion (see chart).

The cumulative total cited in the chart doesn’t include the 15% tax on $112 billion worth of Chinese imports that took effect September 1.

Countries don’t pay tariffs; companies do. These costs typically are passed along to consumers. The resilience of the American consumer has been a pillar of the bull market, but trade tensions are worsening just in time for the holiday shopping season. If consumers get nervous and pull back on spending, the economy would take a major hit.

Indeed, the trade war is paving the way for recession. According to a survey of 51 forecasters, released this week by the National Association for Business Economics, gross domestic product (GDP) growth is expected to decline to 2.3% in 2019 from 2.9% in 2018. The forecasters expect GDP growth to fall to 1.8% in 2020. They pointed to the trade war as the major headwind.

Economists at Morgan Stanley (NYSE: MS) Goldman Sachs (NYSE: GS) and JPMorgan Chase have all predicted that an economic downturn is likely to happen sometime next year, spurred along by the trade war. They also assert that a stock market correction is waiting in the wings.

Steps to protect your portfolio…

Emotions and headline risks are running high; stocks are poised for sharp swings this week. Impeachment proceedings, the Ukraine scandal, trade tensions, weak economic data, outbreaks of military violence overseas (e.g., Turkey)…any number of factors could trigger sell-offs in the coming weeks. The fourth quarter of 2019 could bring a replay of the stock market carnage we witnessed in the fourth quarter of 2018.

Now’s the time to rotate toward defensive sectors. You should reduce your exposure to expensive growth stocks that have already enjoyed a run-up in prices.

Read This Story: 7 Survival Steps for The Next Market Panic

Utilities currently stand out as a safe haven. Utility stocks also provide growth potential and tend to perform well during the late stage of an economic cycle.

The utilities sector has been on fire this year. As of the market’s close Wednesday, the benchmark Utilities Select Sector SPDR (XLU), the largest utilities exchange-traded fund by assets, had returned 24.1% year to date, compared to a YTD return of 18.1% for the SPDR S&P 500 ETF (SPY).

The XLU has outperformed the S&P 500 this year, even though the latter is “growthier” and hence riskier. Quality dividend-paying utility stocks have a lot to offer, including high income as well as share-price appreciation.

Utilities also are buffers against the global trade war, because they derive zero revenue from China.

Where else is your money safe, growing and paying you income? Not in Treasury bonds. Their yields are at their lowest in history. Corporate bonds are riddled with default potential, CDs and money market funds barely keep up with inflation, and most stock sectors are poised for a correction.

Utilities tend to be stable and despite their safety, they’ve been beating the broader market. This outperformance should continue for the rest of 2019 and into next year.

Utility stocks add ballast to a diversified portfolio. By focusing on dividend-payers and domestic-oriented companies, you can win the investment war.

Have a question or comment? Send me an email: mailbag@investingdaily.com

John Persinos is the managing editor of Investing Daily and the premium trading service, Utility Forecaster. For our special report on the wealth-building power of utility stocks, click here.