Stocks drifted lower today amid renewed trade worries, as the White House battled Canada and China over tariffs. The Dow Jones Industrial Average lost ground, the S&P 500 closed essentially flat, and the tech-heavy Nasdaq ended modestly higher.

However, during the month of August, Wall Street carved out fresh records and made fools of the bears. Last week, the bull market officially became the longest in history.

It all begs the question: If the daily headlines paint a bleak picture of mounting geopolitical risks, why has the stock market continued to rise?

It’s because corporations are making (to use a technical term) tons of dough.

Let’s get something straight. The stock market isn’t a referendum on the Democratic or Republican party; it’s not a contest between liberalism or conservatism. It’s not a report card on whether the current occupant of the White House is a competent steward of the economy, although every president portrays it as such. And the stock market certainly isn’t a gauge of social progress.

The stock market is a collective daily bet on the future performance of public companies. Period.

And public companies are flush with profits. The $1.5 trillion in tax cuts, deregulation, and solid economic growth are filling corporate coffers at record amounts.

The wisdom of Gordon Gekko…

I now turn not to Warren Buffett but to Gordon Gekko for illumination.

Oliver Stone’s 1987 movie Wall Street introduced the world to one of the most unforgettable heavy-hitters in cinema history: the corporate raider Gordon Gekko.

Michael Douglas won a Best Actor Oscar for his vivid performance as Gekko. Oliver Stone, who wrote and directed the movie, says he learned about the markets by observing his father Louis, who worked as a stockbroker for more than 50 years. This knowledge shows in the script. Gekko is a villain who actually makes some worthwhile points.

In the movie, Gekko tells his protégé Bud Fox (Charlie Sheen): “It’s all about bucks, kid. The rest is conversation.”

Let’s take a look at the “bucks,” in the form of second-quarter corporate earnings.

For the second quarter, with 99% of S&P 500 companies reporting actual results for the quarter, 80% of firms have reported a positive earnings per share (EPS) surprise and 72% have reported a positive revenue surprise.

The blended year-over-year earnings growth rate for the S&P 500 in the second quarter is 25%, the highest earnings growth since the third quarter of 2010, when it came in at 34.1% (figures are from the research firm FactSet).

So as Trump rails against China, and Turkey rails against Trump, and the Democrats threaten Trump with impeachment, and Trump insults Canada, it helps if you simply view the noisy headlines as conversation.

Trade talks bog down…

Speaking of conversation, talks between the U.S. and Canada to revamp the North American Free Trade Agreement (NAFTA) faltered for a fourth day and ended with no agreement, missing President Trump’s Friday deadline.

The White House and Mexico had previously come to bilateral terms, with details still to be hammered out with Canada.

The Trump administration’s attempts to overhaul the three nation pact have lasted for 12 grueling months, in something akin to diplomatic trench warfare.

Sticking points remain, with the U.S. adamant that Canada make concessions on agriculture, especially its dairy industry. Intellectual property, labor and environmental standards also are under review.

A bilateral deal cobbled together Monday between the U.S. and Mexico fueled hopes that a final trilateral deal could be reached on NAFTA, but those hopes were dashed. In remarks leaked to the press today, Trump spoke disparagingly of our Canadian neighbors. That didn’t help.

Tariffs on cars coming into the U.S. from Canada are another source of contention. As the chart shows, the stakes are high:

The White House has suddenly turned hawkish again on trade.

Trump this week vowed to impose tariffs on $200 billion worth of Chinese goods; he also threatened to quit the World Trade Organization. The protectionists hold full sway in the White House, as they take up arms against the  “globalists.” Since we happen to live in a global economy, it’s the sort of rhetoric that Wall Street fears.

Investors will return from the Labor Day holiday to confront a fresh set of worries and not just on trade.

Trump’s political woes are worsening ahead of the midterm elections, as Special Counsel Robert Mueller’s probe heats up. London’s discussions with Brussels over Brexit were rocky this week, indicating that Britain’s exit from the European Union will be a messy one that dings global growth.

The Federal Reserve will probably raise interest rates in September and emerging markets such as Turkey, Argentina and Venezuela are sinking further into economic chaos and currency crisis.

When these risks start to hit the corporate bottom line, aka the bucks, then stocks will respond accordingly.

Friday Market Wrap

• DJIA: 25,964.82 -22.10 (0.09%)
  
• S&P 500: 2,901.52 +0.39 (0.01%)
  
• Nasdaq: 8,109.54 +21.17 (0.26%)
  

Friday’s Big Gainers

• American Outdoor Brands (NSDQ: AOBC) +43.60%

Firearms accessory provider beats on earnings.

• Lululemon Athletica (NSDQ: LULU) +13.09%

Athletic apparel firm beats on earnings, raises guidance.

• Integrated Device Technology (NSDQ: IDTI) +12.29%

IT infrastructure firm targeted for buyout by Japanese chipmaker.

Friday’s Big Decliners

•  Zuroa (NYSE: ZUO) -18.94%

Cloud provider’s earnings disappoint.

• Big Lots (NYSE: BIG) -10.05%

Discount retailer misses on earnings.

• GMS (NYSE: GMS) -7.52%

Analysts turn bearish on building materials maker

Letters to the Editor

“Which sectors look good during the late stage of economic recovery?” — Linda S.

Utilities, health care, energy, and consumer staples usually rise during the final leg of an expansion. Defensive sectors tied to human needs tend to shine as growth slows.

Questions about sector investing? I’m here to help: mailbag@investingdaily.com

John Persinos is the managing editor of Investing Daily.