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December 13, 2019

Trade Deal "In Principle" Eliminates Growth Risk

From a good Fed outlook to rumblings about a breakthrough on trade, istocks that struggled over the past year are breaking new records.

 

The trade deal is reportedly all ready but the final paperwork. If so, Phase One is happening before the end of the year and tariffs on Chinese exports set to kick in on Sunday will be scrapped. In return, China will start buying U.S. agricultural products again. We're looking at $40 billion flowing to our farmers from the pork-starved people of Asia.

 

This is good timing for the Chinese, who have recently been reeling in the face of nearly 20% food inflation. And the news is good for U.S. consumers who were staring at steeper prices on about $500 billion in products. Some of those proposed tariffs will roll back today. The others are now on the table for renegotiation.

 

Every BMR stock now has a constructive catalyst on its side. In particular, the high-growth stories that soared to high valuations early this year now have their growth scenario restored. If the trade war was the factor clouding these stocks' prospects, a trade truce should logically clear those clouds, right? And since uncertainty itself was what was really holding many of these companies back, now that we know the shape of a deal, everyone can finally start moving forward again.

 

This means that corporate plans put in place a year ago can get executed. Budgets can be made and money allocated to strategic initiatives. Big software packages can be bought, installed and used. And the companies that support these initiatives can sign the contracts they had in the bag a year ago. That money has no reason not to come in now. All the revenue they saw coming will arrive.

 

Take a fresh look at Aggressive and Technology stocks that have fallen from big heights "because of growth fears." The reason to question their growth trends has evaporated. And we know where the stocks can go when there's no fear in the way. These companies soared in the first place because the businesses are moving so fast.

 

One example: Alteryx ($95, down 12% this week). It fell recently for no reason anyone can point to beyond "growth fears." Management couldn't figure it out. Analysts were clueless. But if the biggest drag on growth just evaporated, the people trying to talk this company down don't even have talk on their side any more.