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Window of Opportunity

Earnings Reports & Trade Wars Provide Investors with Chances

Written by Briton Ryle
Posted August 20, 2018 at 2:57PM

I like to look at the stock market in terms of windows of opportunity. We all know opportunities don't last forever. That gift horse standing in your yard won't wait forever. Eventually, the old nag will get tired of waiting for you to seize your opportunity and will move on.

Right now, the horse is visiting Washington, D.C. In fact, it is standing on the lawn of the White House...

The gift is a very solid earnings boost for the S&P 500 that has temporarily distracted investors from focusing their undivided attention on the trade war. There is a window of opportunity to get something done without doing serious damage to the economy and the stock market. 

My question is: Does the president realize he is staring the gift horse in the mouth? 

I worry Trump sees the complacent market as a sign that investors support his trade war. It's not. Investors are focused on their window of opportunity. That is, on earnings. And again, earnings have been really good. Did you see Walmart last week? Sheesh.

Earnings wind down over the next couple of weeks. After that, investors won't have anything to look at except trade issues. Somehow I don't think they will like what they see. Chinese stocks are getting crushed. And growth estimates for China's economy are coming down. 

The good news is that Washington and China are talking. I sure hope Trump is extending an olive branch that can end this situation. Or at least keep it from escalating, because the next step is a doozy...

Trump has already hit his first target of tariffs on $50 billion of Chinese goods. The next installment is basically the whole package: another $150 billion to bring the total to the promised $200 billion. I'm telling you right now, if that happens, the stock market goes into a tailspin. 

Maybe I'm a naive optimist, but I still say something gets done. But the window won't stay open forever.

**I was looking at GrubHub (NYSE: GRUB) a couple weeks ago. The food delivery service had just reported another blowout quarter, and the stock was flying, up like 25%.

Grumpy-me was thinking, WTF, it's just an aggregator, providing a central location for people to order delivery food. Barriers to entry shouldn't be very high; it should be pretty easy to compete. But two things are in play that made grumpy-me change my view...

One, mobile internet has gotten incredibly more useful and accepted. Technology always hits a point of critical mass, the point where adoption is nearly universal. We're at that point now. Like, last night, I could've opened my laptop to check in on how today's trading was shaping up. A year ago, that's what I would've done. But last night I went to my phone. 

This has widespread implications. For apps. For chips. For mobile equipment companies. I'm not delving deeply into that just yet (though this is a primary area of focus for my Wealth Advisory newsletter). 

The second item about GrubHub's success is it fully recognized its window of opportunity and bought out its biggest competitors. Genius. So now it has a very big head start. Any newcomers have a LOT of work to do to catch up. And I bet the venture capital guys will be hesitant to fund any startups because the hill got a lot steeper.

**I'm thinking about that window of opportunity for the subscription streaming music thing. Spotify (NYSE: SPOT) is winning. Apple is #2. And Amazon is preparing to make a big push into this space. 

Here's the thing: Once you have all your music and playlists put together and you're paying $9 or $10 a month for it, are you going to switch to another provider and go through the hassle of creating all your playlists again? I doubt it. I think you stay right where you are.

And so I think Apple and Amazon, behemoths that they are, are stuck playing second and third fiddle to Spotify. That is, if they simply stand pat and try to build this business organically. 

I bet one of them buys out Spotify. And while Amazon is clearly the more acquisitive company, I think it will be Apple. I can't remember the last buyout Apple did. And given that smartphone sales have sort of plateaued, Apple can further solidify iPhone dominance with an embedded streaming music app. 

**I've said it before, but Bank of America (NYSE: BAC) stock is the most important stock on the market. That doesn't mean you have to own it, even though I think it finished the year pushing $40. It's the best indicator stock I know of.

On a day-to-day basis, if BofA is green, look for the market to stay strong that day. If it's red, a sell-off is likely. So if you're trading and a stock you like is down, check Bank of America to help you decide how to proceed. 

**Pay attention to marijuana stocks. Right now, the window of opportunity to buy these stocks is open. No one is talking about them. At least not much. Constellation Brand's second investment in Canopy last week got some play. But nothing like what we will see by the end of this year. The run starts in earnest when AG Sessions gets canned. 

That's what I have today. Talk to you on Wednesday. 

Until next time,

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Briton Ryle

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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He also contributes a weekly column to the Wealth Daily e-letter. To learn more about Briton, click here.

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