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Creative Destruction or Trade?

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The following is an excerpt from Zacks Chief Strategist John Blank’s full Jan Market Strategy report. To access the full PDF, click here.

Is it “Creative Destruction” from within? Or International Trade from outside?

In 1942, the economist Joseph Schumpeter wrote, Capitalism, Socialism and Democracy. It is the third most cited book in the social sciences published before 1950, behind Karl Marx's Capital and Adam Smith’s The Wealth of Nations.

His big enduring idea is the process of “creative destruction.”

He terms this the "process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one."

Today, his process of creation is all largely done by the Info Tech sector. And it is leading the tech growth stocks up in most investor’s portfolios these days.

I found the list of the USA’s industry losers over the last decade, gratis the Bureau of Labor Statistics, to be very interesting.

What internal job destruction themes do I pick out?

In terms of overall jobs lost, the big losers were in newspapers, professional employment organizations, and savings institutions and other depository credit institutions. The newspaper story is the best known. The effect of super low CD rates on savings institutions is little discussed.

But the Info Tech revolutions underway, those that are automating Human Resource professional employment functions, should be worth an equal amount of press…these days. Think harder about Oracle, SAP, Salesforce.com, etc.

I see the Amazon effect on bookstores and news dealers. Google hits libraries and archives. Netflix drives in on video stores and magnetic video manufacturing. The Apple effects appear on telephone apparatus manufacturing and photofinishing and perhaps sound studios with iTunes. Stationary and office supplies are the victims of the home office, email, and evites.

As for international trade deals, perhaps gone awry?

This is a source of external job destruction -- from without and NOT from within.

That would be hosiery and sock mills, textile and fabric finishing mills, other apparel knitting mills & curtain and linen mills. The job counts do not look as high as people think, though I bet most of the jobs damage was done earlier. The wages lost are lower here (29K, 36K 37K and 45K a year were the average annual wages provided/lost).

The last international quotas protecting the U.S. textile industry were lifted in 2004, in the Bush era, according to the BLS. The 1974 Multi-fiber Arrangement has been phasing them out for some time.

Then, there are other very interesting subtleties. Like the port operations, and less land sub-division, and securities exchanges falling back in employment. That is speaking to something else, in part. But Info Tech is the story with exchanges and the annual salaries are big (201K). We get more urban and more automated, where we can.

Take it all-in together.

I opine the destruction wrought by Info Tech exceeds that of International Trade. Tech-related job losses are, for the most part, higher in annual wages, but not always.

Take a look, and decide this for yourself, in the table below.

 

Zacks January Sector/Industry/Company Telescope

January Zacks sector and industry ranks show a New Year entering on strong global tailwinds and see an earnings estimate pickup -- from the Trump corporate and personal tax cuts.

The Very Attractive sectors this month: Info Tech, Consumer Discretionary, and Financials. Info Tech sees the strongest global tailwinds. Rising stock markets help Consumer Discretionary. Financials are the biggest benefactor of lower domestic corporate profit taxes.

The falling sectors: Materials and Consumer Staples. I don’t think the Materials sinking is a 2018 theme to worry about.

Info Tech stayed HOT again. The semis head into the New Year in a strongly upgraded fashion, with fourth quarter earnings season just a few week away.

(1) Info Tech stays HOT, and Very Attractive. Semiconductors stay solidly a top niche again in the New Year. Computer Software-services also stay strong.

Zacks #2 Rank (BUY) Stock: Sumco Corp. (SUOPY - Free Report)

Sumco Corporation manufactures and sells silicon wafers for the semiconductor industry. It offers monocrystalline ingots, polished wafers, annealed wafers, epitaxial wafers, junction isolated wafers, silicon-on-insulator wafers, and reclaimed polished wafers. The company operates primarily in Japan, North America, Asia and Europe. Sumco is headquartered in Tokyo, Japan.

(2) Consumer Discretionary stays Very Attractive again. Leaders are Publishing, Autos/Tires/Trucks, Apparel, and Leisure.

Zacks #1 Rank (STRONG BUY) Stock: Acushnet Holdings Corp. (GOLF - Free Report)

Acushnet Holdings Corp. designs, develops, manufactures, and distributes golf products. The company's operating segment consists of Titleist Golf Balls, Titleist Golf Clubs, Titleist Golf Gear and FootJoy Golf Wear. Acushnet Holdings is headquartered in Fairhaven, Massachusetts.

(3) Financials get to Attractive from Market Weight. The strong spots are Banks & Thrifts, Investment Banking, and Finance, in that order.

Zacks #1 Rank (STRONG BUY) Stock: Great Southern Bancorp. (GSBC - Free Report)

Great Southern Bancorp, Inc. is a financial holding company, which owns directly all of the stock of Great Southern Bank and other non-banking subsidiaries.

(4) Industrials stay at the Attractive level. The leaders are Pollution Control, Metal Fabricating and Machinery.

(5) Energy remains Attractive. Alternates and Oil & Gas Integrated lead. Surprisingly, Drillers are Attractive now.

(6) Materials fall again, this time to Market Weight from Attractive. The leaders are Chemicals and Metals Non-ferrous again.

(7) Health Care stays a Market Weight. The leader is Medical Products again.

(8) Telco Services is a clean Market Weight, but with no plays.

(9) Consumer Staples fall to Very Unattractive. The sole bright spot is Food/Drug retail.

(10) Utilities stay a modest Unattractive.

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