A rough approximation for the origin of revenues and profits for the S&P 500 is that half of each come from domestic sources and half from foreign.
concept
One of the major goals of the Trump administration has been to weaken the dollar, a strategy most often employed by developing economies to boost foreign sales while weakening foreign competition in the domestic market. A second is to shrink the domestic workforce, a move seemingly at odds with the first.
Still, the obvious portfolio shape that results from all this emphasizes (overweights) companies that have their revenues in foreign currency and their costs in dollars. Tech companies, software in particular, are the most obvious beneficiary. Any company that uses foreign currency inputs and sells to domestic customers is the equally obvious loser. Tariffs work as a multiplier on both the plus and minus sides. In theory, they fend off foreign competition, but they also raise the cost of foreign inputs for local companies.
valuation
Until recently, this has been a very successful portfolio structure. There has been rotation within the tech sector away from end product creators to component suppliers–some of the latter for the first time in years! This rotation itself is evidence that the primary market thrust has been getting long in the tooth. It isn’t that the companies involved have changed, however. It’s that the prices of the stocks of the primary beneficiaries have risen to the point where the secondary stocks are seen by the market as having greater value.
Recently, though, it seems to me that there have also been signs that market interest is starting to widen into the stocks of companies that depend on domestic demand. In a typical domestic business cycle, the targets would be less-than-stellar consumer stocks that have strong brand names and distribution networks but weak managements. As far as I can see, these continue to be pummeled. What appear to be perking up are strong consumer names whose businesses have been hurt by the Trump anti-growth economic/social agenda.
At this stage, I have no idea whether this market shift (which I bought into in my own portfolio a couple of months ago) is being driven chiefly by valuation, or whether this is anticipation that voters will call for a significant change in policy in the November elections.