7 Mega-Trends That Will Outlive Today’s Chaos
“Chaos is good for CNN.”
— Jeff Zucker, president of CNN Worldwide
The world’s two largest economies are embroiled in a destructive trade war, global economic indicators are deteriorating, the Western alliance is fractured, and the stock market is a roller coaster.
It’s all bad for investors, but good for TV ratings. If chaos fills the coffers of cable news, then Mr. Zucker (net worth: $40 million) must be happy indeed.
My advice? Turn off your TV. Take a deep breath. Look at the big picture.
One of the surest ways to make money is to invest in unstoppable trends largely immune to headline risk. I’ve pinpointed seven trends that should withstand the current outbreak of turmoil.
And that turmoil is about to get worse.
Billionaire Ray Dalio, founder and chairman of the hedge fund Bridgewater Associates, asserted yesterday that there’s a 40% chance America could experience a recession before the 2020 election. Bridgewater is the world’s largest hedge fund, so when Dalio speaks, you should pay heed. Dalio, by the way, predicted the 2008 financial crisis.
Now’s the time for you to re-balance your portfolio toward recession-resistant investments. The following trends will continue to unfold, regardless of economic fluctuations, market ups and downs, presidential tweets, or which party occupies the White House.
1) Medical information technology. In the booming health care field, cost containment is the name of the game. Federal and state regulators increasingly mandate the use of information technology to digitize and analyze patient records. Software firms in this space enjoy long-term tailwinds.
2) Robotics/automation. Increasingly integrated with artificial intelligence (AI), robotics/automation is permeating a wide variety of industries.
The International Federation of Robotics (IFR) estimates that over 2.5 million industrial robots are at work this year, representing an average annual growth rate of 12% between 2016 and 2019. But it’s not just manufacturing; programmable robots are spreading through myriad aspects of daily life.
3) Next-generation power providers. The migration from coal to natural gas and renewable energy confers many environmental advantages, but it also represents a watershed in the power generation sector. Long-term plays include natural gas producers, liquefied natural gas (LNG) shippers, and renewable power suppliers.
4) Technology for 3D-sensing. Makers of chips and other components that support three-dimensional sensors embedded in smartphones face growing demand. These capabilities are crucial to the exploding field of virtual/augmented reality, which is migrating beyond video games and into commercial applications.
Chipmaker stocks have gotten clobbered lately because of trade sanctions against the sector, but when the tariffs eventually end, these beaten-down stocks should swing sharply higher.
5) Aerospace/defense innovators. Rising military tensions in regional hot spots are fueling greater Pentagon expenditures. However, the large-cap contractors are overvalued and vulnerable to trade risk. Better bets are smaller defense firms that specialize in “next-generation” electronics that integrate weapons systems within the Internet of Things (IoT).
6) Immunological treatments. Immunotherapy is on the cutting edge of medical science, as researchers try to find ways to get the body to fight cancer by itself, eliminating the need for costly and painful techniques such as chemotherapy and radiation. Small biotechs with new immunotherapy drugs in the pipeline are poised for big gains.
7) Breakthrough tech in e-commerce. We’re seeing the inclusion of ultra-sophisticated technology, notably AI and IoT, with online shopping. The results include features such as visual search tools and “deep learning” capabilities that make it faster and easier for shoppers to find and buy what they want.
In addition, retail giants such as Amazon (NSDQ: AMZN) and Walmart (NYSE: WMT) are applying AI and IoT to their distribution capabilities, as e-commerce grows in emerging markets and supply chains get stretched.
This e-commerce mega-trend is particularly relevant to the overall economy; it deserves a closer look.
The consumer to the rescue…
In recent columns, I’ve highlighted many of the negatives for the U.S. economy, such as slowing manufacturing activity.
But there’s one big positive that’s helping to offset these headwinds: high consumer confidence. About 70% of U.S. gross domestic product is consumer spending, so it’s always crucial for investors to keep an eye on the American shopper.
Strong employment growth, low gasoline prices, rising home prices, and reduced household debt have buoyed consumer spending throughout the year, counterbalancing global uncertainty. Despite healthy demand from shoppers, inflation has been kept in check by falling energy prices and a strong U.S. dollar that makes imports less expensive for U.S. consumers.
In good news for a change, the U.S. Commerce Department reported Thursday that retail sales surged in July, as consumers bought a range of goods even as they curtailed motor vehicle purchases. The positive report helped the stock market partially bounce back yesterday from Wednesday’s plunge.
Retail sales rose 0.7% last month after gaining 0.3% in June. The consensus estimate was for sales to only rise 0.3% in July. Compared to July 2018, retail sales increased 3.4%. The enduring strength of retail sales has been reflected in the encouraging second-quarter earnings results of major retailers.
Next week, we’re scheduled to get key economic data that will provide further clues as to the consumer’s confidence and by extension the stock market’s direction (see table).
I’ll be keeping an especially close watch on weekly jobless claims. A pillar of the bull market has been the unemployment rate of 3.7%, a 50-year low.
The headline employment number stands out as a mitigating factor amid trade war tensions and fears of a cooling global economy. A weak jobs report next Thursday could undermine consumer confidence and fuel bearish sentiment on Wall Street.
The same principle applies to existing and new home sales. The housing market has plateaued lately but still holds firm. However, if the numbers next Wednesday and Friday indicate that this important sector is falling off a cliff, the stock market will react badly. For most Americans, their home is their biggest asset and an integral part of their long-term wealth building strategy.
Adapt or die…
President Trump’s economic program focuses on the negative effects of global trade on domestic manufacturing. But America’s dominant private sector employer is retailing and its worst enemy isn’t Mexico — it’s Silicon Valley.
According to the U.S. Bureau of Labor Statistics, the manufacturing sector directly accounts for 12.5 million jobs, making it the third-largest employer by industry. Health services comes in at number two, with 19.8 million workers. Topping the list by far is the retail trade, at 28.9 million jobs. Both retailing and manufacturing continue to shed jobs, while health care employment is expanding.
The biggest threat to retailing is new technology, not trade. Ironically, economic nationalism will accelerate the threat of technological disruption against U.S. retailers, because companies in the sector that aren’t able to outsource jobs will compensate by investing in labor-saving machines at home.
As reflected by my list of seven mega-trends, e-commerce is an unstoppable juggernaut. The following chart, compiled with data from research firm Statista, shows projected retail e-commerce sales growth in the U.S. through 2022:
A time-proven way to make money over the long haul is to invest in companies with technologies that are transforming business models. The rise of e-commerce pioneer Amazon epitomizes this truism.
Extreme market volatility will likely continue into the foreseeable future. Bet on mega-trends with sustainable momentum. That way, your portfolio is less vulnerable to the market’s gyrations.
To be sure, it’s not all that easy to pinpoint mega-trends in the heat of battle. The daily news can mislead you with drama and distractions. But I’ve just steered you toward seven investment themes with strong appeal and sustainable momentum.
Tune out the nightly shouting on cable news and focus on the long term. CNN may thrive on chaos, but your retirement portfolio doesn’t.
Questions about the best secular investment trends? Drop me a line: firstname.lastname@example.org
John Persinos is managing editor of Investing Daily.