Similar to many consumer-electronics companies, Sony (NYSE:SNE) suffered a poor showing in October. Last month, Sony stock dropped 11% in the markets. Its rivals Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) also incurred volatility, albeit to a noticeably lower magnitude.
What made the decline in SNE stock distinctively troubling, though, was that it snapped a much-needed recovery effort. After the 1990’s, the once-unassailable Japanese giant began showing serious weaknesses. Apple quickly advantaged those vulnerabilities, producing the iPod and later, the iPhone.
Of course, Sony stock faltered during Apple’s rise to prominence, but it wasn’t the only victim. For instance, Microsoft couldn’t gain any traction under the Steve Ballmer era. But when current Microsoft CEO Satya Nadella took over, the company adopted an entirely new complexion.
SNE has enjoyed its own resurgence. The difference, though, is that investors generally don’t find SNE stock believable. Japan’s economy has endured a decades-long recession, and while we’re seeing improvements, the road is a long, arduous one. Since Sony symbolizes Japan in many ways, prospective buyers remain leery.
Despite these long-seated concerns, Sony stock put up great numbers following the U.S. midterm elections. Shares gained 3.3% after several weeks of choppy trading. That said, the broader markets received a post-election boost. Should investors trust SNE, or is this merely a head-fake?
Political Headwinds Soften for Sony Stock
Earlier, I mentioned that several publicly traded companies enjoyed a midweek lift. Therefore, on the surface, it may appear that jumping on SNE stock is premature. Detractors might warn against conflating SNE’s on-the-spot bullishness with substantive fundamental tailwinds.
It’s a fair point. However, it overlooks the distinctive advantage that Sony stock now carries following the midterm elections. With Democrats controlling the House and Attorney General Jeff Sessions in the unemployment line, Trump must operate more carefully.
Such political dynamics have incredibly positive implications for Japan, and by logical deduction, SNE stock. Among all the allied countries with which Trump has dealt, Japan has consistently drawn the short end of the stick.
It began during the 2016 campaign trail. A real-estate mogul at the time, Trump accused that the Japanese would “sit home and watch Sony television” if the U.S. were attacked. He also criticized former President Barack Obama for not mentioning Pearl Harbor during his visit to Hiroshima.
When Trump took office, his negative and aggressive stance continued, sending a ripple effect toward Japanese businesses. Prime Minister Shinzo Abe’s attempt to personally restore U.S.-Japan relations to normalcy became a hilarious meme.
Just recently, the President had an awkward and embarrassing exchange with a Japanese reporter. Referring to Abe by his first name — a cultural faux pas — Trump mocked the Prime Minister regarding ongoing trade discussions. I felt bad for the reporter. Apparently, he mistook the White House for a professional and dignified institution.
Make no mistake: Trump’s anti-Japanese posture was specifically bad for Sony stock. One of the President’s first actions was to remove the U.S. from the Trans-Pacific Partnership proposal. SNE executives actively pushed for the deal as it would facilitate reduced trade barriers.
Abe practically begged for Trump’s approval, but to no avail.
Everyone Can Now Focus on the Positives for SNE stock
During his first two years in office, President Trump had free reign to treat the Japanese as he wished. With full control of the government, it was his way or the highway. But under a split government, he’ll need to wade carefully.
It’s not just that the Democrats have the House. Rather, Trump couldn’t rely on his “silent majority” to give him complete reign. The consequence is that unless he moves more toward the center, he’ll risk alienating voters for his own reelection efforts.
In this new paradigm, the Democrats will insist that the President treat Japan more fairly in trade negotiations. China represents an ironic partner because continued U.S. pressure against the Japanese would draw them closer to their regional neighbor.
More importantly, this dynamic allows investors to focus on the many positives for SNE stock. Chief among them is the Sony PlayStation. The company enjoyed a strong beat for its second-quarter earnings report, and its video-game platform contributed the most. Thanks to a 27% increase in gaming revenue, Sony booked a $2.1 billion profit.
Growing popularity for esports and similar passions will more than likely lift Sony stock longer-term. Management feels so confident about this prospect that it raised guidance for operating profit for the full fiscal year.
It remains to be seen whether SNE stock can return to its former glory. But with a major political distraction out of the way, management can at least get back to business.
As of this writing, Josh Enomoto was long SNE.
