I’m old enough to remember Monty Hall, who from 1963-1986 hosted the tacky but hugely popular television game show “Let’s Make a Deal.” The show is still on the air; Hall died in 2017.

I thought of the iconic Mr. Hall this morning, while I watched White House shills on CNBC discuss the trade war. Grinning like game show hosts, they assured the viewing audience that a trade deal would get struck. Despite my well-founded skepticism, it occurred to me that, if they’re right, certain sectors that have been clobbered by trade tensions would immediately spike upwards.

Instead of looking at the losers of a trade war, let’s look at the sectors that would immediately benefit if the current round of trade gamesmanship finally ends.

Over the past several months, as the tit-for-tat tariff spat heats up, certain defensive sectors — notably utilities and real estate — have outperformed the S&P 500. Sectors vulnerable to trade sanctions, such as information technology, industrials, and communications services, have underperformed.

That’s not surprising. As the White House throws sand into the global trade gears, export-dependent companies with greater overseas exposure are positioned to get hit the worst.

According to Strategas Research, the utilities and real estate sectors generate a paltry 3.1% and 14.1% respectively of their revenues from foreign sources, whereas the technology sector derives a considerably higher 57.8% of revenues from foreign markets. For many mega-cap Silicon Valley companies, China is hugely important as a consumer market and source of components.

The office of the U.S. Trade Representative reports that China is currently our largest goods trading partner, with two-way trade totaling $659.8 billion in 2018. Goods exported totaled $120.3 billion; goods imported totaled $539.5 billion. The U.S. goods trade deficit with China was $419.2 billion in 2018.

The top export categories from the U.S. to China in 2018 were aircraft ($18 billion), machinery ($14 billion), electrical machinery ($13 billion), optical and medical instruments ($9.8 billion), and vehicles ($9.4 billion). The stocks in these industries have served as barometers of progress, or lack thereof, in trade talks.

Pick a sector…

The first place to look for value plays, if it appears that a trade deal between the U.S. and China will occur, would be in the areas that have been pummeled the worst.

The reaction, over the short-term at least, would be for investors to rush into those sectors. You still need to stick to quality and choose companies with intrinsically sound fundamentals; don’t pile into a sector indiscriminately.

But the trend is clear. For the second quarter, S&P 500 companies with higher global revenue exposure are expected to underperform S&P 500 companies with lower global revenue exposure in terms of earnings and sales growth, according to research firm FactSet. The shares of companies in the former group have indeed underperformed in recent months.

Read my June 10 story: Can Wall Street Sustain Its Balancing Act?

Investors are transitioning away from momentum growth stocks toward safer sectors more appropriate for the late stage of a recovery, such as utilities, real estate, consumer staples, and health services. These stocks are better equipped to weather the storm if the economy sputters because of trade conflict with China.

But the underperformers would be among the first to shoot higher if a grand trade deal is forged between the world’s two largest economies.

Technology, industrials, telecom, consumer discretionary — these sectors have gotten punished the most. If you think a deal is forthcoming, that’s where you should do your hunting. If you’re optimistic about a trade deal, now’s the time to perform a tactical shift in your portfolio.

Forcing Trump’s hand…

As I’ve repeatedly warned you, Trump is in no hurry to end this trade conflict, especially as he strives to appear “tough” to his electoral base ahead of the 2020 presidential election. But the weakening U.S. economy could force Trump to back off on his trade threats.

The president’s assumption has been that U.S. economic growth gives him the upper hand, but he could be losing that advantage. Job creation and factory activity are slowing down. Investors assume that the Federal Reserve will ride to the rescue with a rate cut, but what if the central bank doesn’t?

Wall Street has an enormous capacity for self-delusion and it may be overestimating the likelihood of a rate cut. Despite pressure from the White House to loosen monetary policy, Fed Chief Jerome Powell has proven to be resistant to political meddling.

Trump also is feeling the heat from his most ardent supporters — “red state” farmers in America’s heartland. Bankruptcies among U.S. farmers are rising, as China cancels soybean and corn orders and devises ways to do without U.S. imports of those crucial crops. China has been mandating and subsidizing higher soybean and corn production from its own farmers and relying on Brazil and Russia as alternative sources.

These economic and political factors add pressure on Trump to make a deal. As we saw last week when he abandoned his threat to slap tariffs on Mexico, America’s unpredictable president has a history of either moderating or dropping his initial stands (and then claiming victory anyway). One pillar of the bull market has been the belief of investors that Trump’s bellicose trade rhetoric is mostly bluster.

But even if you’re a trade war optimist, the key dilemma is timing. There’s no telling when a deal could be struck. President Trump and Chinese President Xi Jinping are scheduled to meet at the G-20 Summit on June 28-29, in Osaka, Japan.

There’s been no indication that the two sides are moving closer together. If there’s no deal at the summit, sectors that have suffered under the trade war would probably take further hits. Trade conflict could continue right up through the 2020 election, but the White House’s position appears to be rapidly deteriorating. Also keep in mind, Xi is under the gun from his own people as well. China has suffered from the trade war and Xi can’t afford to let the damage continue.

This particular sector rotation strategy isn’t for the risk averse, but it could pay off handsomely for patient investors who are willing to withstand the ups-and-downs along the way. As the trade game plays out and the pressure for compromise builds, one or both parties might suddenly yell: “Let’s make a deal.”

Got a question? Drop me a line: mailbag@investingdaily.com

John Persinos is the managing editor of Investing Daily.