Market Perspectives

A Tale of Two Sectors

2019 played out to be a year of extreme dichotomy in the U.S. and to a lesser extent the rest of the world. On the one hand, consumer confidence remained high and consumers continued to spend their growing wages, thanks to extremely low unemployment and rebounding real estate activity. On the other hand, the manufacturing sector fell into recession during the year as the global slowdown spread and intensified, and trade tensions continued to beat down manufacturers’ confidence (see Chart 1). To counteract the slowing economy and prolong the economic expansion, central banks worldwide provided huge amounts of monetary stimulus by cutting interest rates. The U.S. Federal Reserve cut policy rates three times in 2019, helping to right the inverted yield curve and, so far, appearing to have successfully avoided an economic hard landing. Likewise, a total of 35 central banks globally eased monetary policy in 2019.

5G Rising

At this point, you have likely heard the term “5G” thrown around in sim­i­lar fash­ion to AI (arti­fi­cial intel­li­gence), autonomous dri­ving, and IoT (inter­net of things). The evo­lu­tion of fifth-​generation (hence, 5G) cellular/​mobile net­works will pro­vide a host of oppor­tu­ni­ties for busi­nesses, con­sumers, pub­lic enti­ties, and investors alike in the years ahead as the new mobile com­mu­ni­ca­tion super­high­way will facil­i­tate the faster trans­mis­sion of increas­ingly large data vol­umes. While increased data flow brings with it incre­men­tal cyber­se­cu­rity and per­sonal infor­ma­tion shar­ing chal­lenges, if man­aged respon­si­bly the ben­e­fits of 5G stand to out­weigh the risks.

Deficits and Mar­ket Churn

As we pro­ceed through the fourth quar­ter of 2018 we are expe­ri­enc­ing one of the most intense peri­ods of equity volatil­ity since this long bull mar­ket began in 2009. There are mul­ti­ple con­tribut­ing fac­tors at play includ­ing geopo­lit­i­cal ten­sions, expen­sive stock val­u­a­tions, ris­ing inter­est rates, and trade dis­putes. Region­ally, the Euro­pean Union exper­i­ment is start­ing to crum­ble with BREXIT sched­uled to hap­pen (or maybe not?) on March 29, 2019. The Euro­pean Cen­tral Bank is on the verge of revers­ing their unprece­dented mon­e­tary eas­ing pol­icy. Emerg­ing mar­kets are expe­ri­enc­ing their worst period of insta­bil­ity since the cur­rency crises of 1997. Chi­nese growth is decel­er­at­ing as author­i­ties strive to achieve a consumption-​based econ­omy. And in the U.S. eco­nomic and polit­i­cal uncer­tain­ties abound. As a result, we here at Zevin Asset Man­age­ment rec­og­nize that the out­look for global equity mar­kets has become increas­ingly risky through­out 2018 and par­tic­u­larly so in the third and fourth quar­ters of the year.

Auto­mo­bile Indus­try & the Elec­tric Vehi­cle Revolution

The growth of the global auto­mo­bile indus­try over the past cen­tury has been intrin­si­cally tied to the inter­nal com­bus­tion engine. Rapid advances in bat­tery tech­nol­ogy rep­re­sent a sea change for the indus­try that has fueled the accel­er­at­ing global roll­out of elec­tri­fied vehi­cles that will dis­place demand for con­ven­tional vehi­cles. The elec­tri­fi­ca­tion of vehi­cles, both pas­sen­ger and com­mer­cial, is a game changer that will dis­rupt the staid indus­try. Tra­di­tional man­u­fac­tur­ers, sup­pli­ers, and dis­trib­u­tors will be forced to con­front the new elec­tric car real­ity and the dif­fer­ent com­peti­tors, eco­nom­ics, and reg­u­la­tions that accom­pany it. If done right, this impor­tant shift can have a sig­nif­i­cant pos­i­tive effect on car­bon emissions.

War! What Is It Good For?

The clas­sic anti-​war song of the 1960s “War” per­formed by Edwin Starr for Motown records was intended as a protest against mil­i­tary con­flict dur­ing the war in Viet­nam. The singer’s bold and defin­i­tive con­clu­sion that war is good for “absolutely noth­ing” is equally applic­a­ble to the mis­guided pol­icy of trade wars. Yet here we are in the early days of this exact pol­icy blun­der, which has been con­demned as short­sighted and destruc­tive by vir­tu­ally every econ­o­mist, polit­i­cal sci­en­tist, busi­ness leader, and elected offi­cial — save one: Pres­i­dent Trump.