For most of the thirty years I’ve been a professional investor, there has been a very dependable, high-beta link between world economic growth and world trade.   When economies were expanding, trade would expand at a much higher rate;  when economies were slowing, or contracting, developments in world trade were much more negative.

What was equally important for an investor was that although the economic data were clear from the outset, for many years equity investors in the US and Europe were slow to figure out what was going on.  As a result, from the 1970s through the 1990s there was plenty of outperformance to be had simply by overweighting multinationals and global transport companies during economic expansions and underweighting them during slowdowns.  Of course, one also had to give at least some consideration to currencies–that is, to make sure that a company had its revenues generally in harder currencies and its costs in weaker ones.  Still the main idea was to exploit the high sensitivity of trade to world growth.

Today’s equity markets have caught on.  It’s now part of most equity portfolio managers’ tool kits to favor multinationals and transports in upturns and shy away during downturns.

What I find interesting–and important–is that the economics seem to have changed over the last half-decade.  Over the past few years, global trade has grown no faster than the world in general.  It’s not 100% clear why this is so, but a reasonable guess is that the era of global production reshuffling between developed and developing nations to take advantage of lower labor costs, newer, more efficient plant and stronger management is over.

If this is right, and if I’m correct that stock markets haven’t really caught on to the new reality yet, then multinationals will be disappointing vs. expectations and the (more difficult) place to look for outperformance is with domestic firms within a given national arena.

There are also political implications (although I usually find political speculation irrelevant for making stock market gains).  Maybe the anti-trade stance of both Hillary and Trump is a case of fighting the last war.  The new economics would also suggest that the Trump campaign is much more deeply rooted in notions of white supremacy we thought had been left behind in the 1960s than we would like to believe.