There really has been no significant change as it seems to bounce around every day. Keep in mind these 100-point moves we’ve seen are the result of more and more electronic trades, and trades seem to be based off every headline whether it’s Trump Tweets, US trade with China or GE being replaced by Walgreens in the Dow.
To that point, the Dow Jones Industrial Average is becoming less industrial, but with GE down, it was again becoming clear that it’s not representative of the US economy as a whole, whereas one could argue that with healthcare being what it is, and the aging boomer population, that having Walgreens included into the Dow (along with there being a Walgreens on every corner), it’s more indicative of what’s actually happening in America. Some food for thought: Often people ask why indices such as the Dow continue to go higher over time (excluding market corrections)? The simple answer is that the indices are constantly changing the roster of who’s included, just like baseball managers are always making changes to their lineup. Over time, older players get tossed as they can’t offer as much to the team or index. GE had been in the Dow since the 1920s. We’ve seen it changing to the services economy, and Walgreens with its pharmacies is more representative of the current times. Switching out the aging GE for the prime Walgreens may just benefit the Dow over time, as well as those who hold it.
As for China, the US/China trade talks have given pause to any companies that have a significant part of their revenue coming from China. Think of the mature blue chip stocks, the companies that pay healthy dividends – many are industrial, manufacturing, banking, as well as small-tech companies. I don’t anticipate any of these stocks moving much until the trade talks are finalized, and Wall Street can hone in on the winners and losers.
One area we’ve intentionally focused your portfolios on because of these talks has been companies that don’t do business with China, and so far we’ve been spot on in our thinking that these companies should do fine regardless of how the trade talks turn out. I can’t give you a list due to compliance rules, as these stocks may not be suitable for all, but I certainly will share if you’d like to sit down and discuss these options in your next quarterly chat. I can tell you that the companies that don’t do business in China have outperformed the companies that do a significant portion of their business in China. (Note: past performance is no guarantee of future results.
One thing that hasn’t been mentioned in trade is, what if one outcome is that companies currently not allowed to do business in China, like social media companies, are suddenly allowed to? If that happens, it could be a magical moment for these businesses, as the margins would increase and profits to shareholders would likely rise, as they roll out to 8 zillion people (or whatever the population of China is!). As an optimist, I always try to find the silver lining, whether in Trump Tweets or trade talks.
As always, for those of you who don’t work with us, we’re half way through 2018, and I highly recommend that you sit down with one of our advisors and have a serious conversation and allow us to review what you’re currently doing, whether you’re self-managed or working with another advisor. Regardless of your decision to work with us, you’ll be better educated moving forward about what you’re currently doing.
For those of you who are working with us, on behalf of our team, we greatly appreciate the opportunity to serve you and your family. I know it’s summer, but please do come in for your quarterly meeting check-up, whether in person or via conference call.
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