July 17, 2018

An article published by Newsweek in 1995 trashed the idea of the internet. It swatted down visions of its future as “baloney.” It said, “No online database will replace your daily newspaper, no CD-ROM can take the place of a competent teacher and no computer network will change the way government works.”

Clifford Stoll was the oracle in question. Needless to say, this was not the shining moment of his otherwise impressive career. It may or may not have been the dominant opinion at the time, but either way it was a controversial topic. Addressing controversy does one thing very well: It sells magazines.

It takes a while to realize that you’re wrong and, with most of us, it takes even longer to actually concede and admit that you’re wrong. Nowhere does this ring truer than in the media. This is especially true when there’s a story that an industry gets fully behind. For years, the news media has been generally anti-Trump, seizing any opportunity to paint a negative portrait of him. The man does give the news media a ton of ammunition for this, but we are beginning to see cracks in the wall of anti-Trump news coverage.

First of all, CNBC is suffering in the ratings department while Fox Business News is seeing its ratings swell. CNBC’s Jim Cramer recently has been walking back some of his inflammatory language on Trump and his policies. Other media may stop doubling down and concede they may be backing a stale story.

The trade war rhetoric is a story that has been trying to gain momentum since the beginning of the year. February ripped the markets apart with fears of slowing global growth, only to give way to new highs a few months later. All along the way, the tit-for-tat tariffs story has failed to tank the markets.

When $200 billion of tariffs pounded the fear-drums of a trade war, how did the markets respond? The NASDAQ Composite and Russell 2000 indexes are basically at new highs while the S&P 500 and Dow Jones Industrial average are a few percentage points below their highs. The latter two indexes have been in a sideways trading range while the tech-heavy NASDAQ and small-cap Russell have been stronger.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

This tells us that U.S. domestic companies are attracting more investment capital right now. This makes sense. Tax reform directly benefits companies that derive their revenues from American soil. Larger multinationals are facing more uncertainty with a stronger dollar putting pressure on profits derived overseas. Trade talk and geopolitical concerns are also more of a question mark for multinationals. In plain English, U.S.-based smaller companies stand to benefit while larger multinationals have more risk.

This also helps fuel the repatriation of corporate cash sitting overseas. Tax reform allows companies to repatriate that money to the U.S. with a one-time low tax rate. As this cash comes home, companies are using some of it to buy back their own shares at a record pace. This means there is still an underlying bid to the stock market despite what you may be reading in the headlines.

I met a friend of mine this weekend who manages his own hedge fund. Prior to that, he oversaw $500 million for a macro hedge fund trading global equities. Prior to that, he spent 15 years at the most prestigious Wall Street firm you can name. I value his opinion greatly and what he said made sense. He said Trump is engaging in argumentative talk in the public arena to create attention and get what he wants. He is instigating this “trade war” with China to achieve his ultimate goal of more economic equalization and less dependency. Then he will turn around with hugs and be friends.

Isn’t this what we just saw with North Korea?

The Same Leaders Are Driving This Market Higher

No matter what happens, the market data tells the real story. Sector leadership remains in growth-oriented areas like Information Technology, Consumer Discretionary, and Health Care. Many of the leaders in these sectors are smaller-capitalized companies that rely mostly on domestic revenue. Sound familiar?

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Real Estate has also seen a surge in performance, as future rate hikes are perceived to be less likely than before. This means rates are likely to stay low for a while. Taxes are historically low, earnings are surging, and sales are booming. Consumers have more dollars in their pockets and the economy is strong. Let’s add an earnings season (just beginning) that is likely to be awe inspiring – like the last one.

My point is that the backdrop for stocks seems quite rosy.

I look to stocks with the best sales and earnings occupying pole positions in their industries. U.S. revenue-based companies stand to benefit right now. This spells one word that gets me excited: GROWTH.

Don’t believe everything you see and hear. Make well-informed decisions. The news might be seizing on what they believe to be popular topics to drive their ad sales, but their angle might be chosen for purposes of intentional misperception to be revealed down the road. Either way, make your own decision.

About The Author

Jason Bodner

Jason Bodner writes Sector Spotlight in the weekly Marketmail publication and has authored several white papers for the company. He is also Co-Founder of Macro Analytics for Professionals which produces proprietary equity accumulation/distribution research for its clients. Previously, Mr. Bodner served as Director of European Equity Derivatives for Cantor Fitzgerald Europe in London, then moved to the role of Head of Equity Derivatives North America for the same company in New York. He also served as S.V.P. Equity Derivatives for Jefferies, LLC. He received a B.S. in business administration in 1996, with honors, from Skidmore College as a member of the Periclean Honors Society. *All content of “Sector Spotlight” represents the opinion of Jason Bodner*


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