I am NOT a stock market expert, but it seems (as Tim Anderson on Twitter argues) there is a major disconnect between the “economy” and the stock market. As best I can tell, this is centered on the tech sector.
There are several issues with tech that I think any sensible investor can see.
1) As some have pointed out quite well here on FR, where Steve Jobs over his career presided over FOUR major innovations (PC, cell phone, iPad, iPod), since he has died, Apple has basically reshuffled the phone deck again and again. The iWatch? Really? Ok, give them “one.”
We see this throughout tech right now. They have entered that period of growth where they are managing existing products. It happens in every industry. True innovation and radical change disappears. (See: GM and Ford in the 1960s).
2) The pending threat of regulation. I believe Trump can run on trust-busting in 2020 in Big Tech and Big Pharma. The rule of thumb in the US economy is that sooner or later companies stop regulating themselves and the government steps in. I wish it were not so, but you’d be hard pressed to give me examples of an industry whose self policing worked (maybe movies and the comic book industry). Drug prices are beyond ridiculous, for a number of reasons you all know-—regular old greed, having to subsidize Europe with our prices, the obsession with researching “new” drugs when no one can afford the old. It’s like Ferrari in a downtrodden country continually researching more expensive cars. So far, Trump has only made a few comments about this, but I could see him pivoting to trust busting in 2020.
3) The Chinese monster. As you all know, when you get in bed with commies, they call the tune. The Chicoms lured in American tech with the prospect of slave wages and a giant market-—and now they are stuck with a communist tyrannical ally. Just because China is a “softer” communism doesn’t make it any better. Sooner or later, the globalist tech companies will have to pick a country.
4) Public backlash: I think there is a genuine and deserved distrust of tech-—it’s not Ludditeism-—both from a security standpoint and from a political censorship standpoint.
I’m sure some of you better versed in the market than I am can point to problems with stocks in other sectors, but this, at least, seems an obvious starting point.
>>>I am NOT a stock market expert, but it seems (as Tim Anderson on Twitter argues) there is a major disconnect between the “economy” and the stock market.
An important thing to keep in mind is that about 45% of revenue for S&P 500 companies comes from foreign sales. When we had synchronized global growth from 2017 into 1H18, that spurred the growth in the index. Now we have slowing in some global markets and the indices reflect that. Obviously, the consumer economy is doing well.
Most US recessions are triggered by excesses in the housing market. In this recovery, residential investment remains well below historic trends, so it is unlikely to drive a recession. I anticipate any recession will be more corporate focused and fairly shallow. Some corners of the corporate market are overleveraged and will come under pressure with slower US growth combined with slow global growth.
I appreciate your comments.
I think what we are seeing in the stock market is an adjustment to real value in tech stocks. What are Apple, Facebook, Snapchat, Google, etc. really worth?
People have jobs. People are spending money. They are more comfortable in their future.
However, the new normal for housing has changed. In many places in the country housing is not affordable for young people. Plus so many come out of college with debt higher than my first mortgage. Young people are choosing to have less children or none at all. The baby boomers are moving into smaller houses or assisted living centers.
Some states like ID, UT, AZ, SC and TX continue to benefit from the demographic shift and the flight from high tax, high costs states to live like IL, NY, CT, CA, NJ.
Almost everyone moving to Idaho is coming from California and Washington. This is the same thing that happened here in NH from 1985-2018. It change us from a Red to purple/blue state.
Everything is made in China. I just bought a Milwaukee 1/2 cordless Hammer drill at Home Depot. Made in China. I got home from the grocery store and noticed when putting the fresh peeled garlic that it was a product of China. I wanted to throw it in the trash. Mrs. Woodbutcher would not let me.
However, China’s economy is slowing down. So, are ALL the other countries who are major oil exporters. Therefore, they all want to sell more of their products here because the US economy is better than anywhere else in the world. I see it in the lumber industry. There is so much European lumber coming here now because they can get more for it here than China, Europe, Japan or the Middle East. Same thing with Brazilian plywood and lumber from Chile and New Zealand. Everyone wants to sell their product here.
One of the disconnects with stocks is that the interest rates were so extremely artificially low that capital was forced into the market as other investment paths were made worthless.
It may be that an improving economy causes a decrease in the stock markets as money flows out to some of the more traditional alternate investment areas.
The tech surge is the number one reason to give me pause. We have seen this before. Can you imagine buying a private business that took 200 years to recoup your investment? But that is the PE ratio of Netflix. I give Netflix has the benefit of having some room in pricing. Their price increase here in Canada from $14 to $17 won’t obviously cause me to toss the service. $30 would probably be my limit. But they are spending money like crazy. Didn’t we see this in the run up to 2000? Major cash drains on tech companies?
As for your tech, you’re missing a lot of innovations.
1) Quantum Computing. It’s heading to massive.
2) AI. It is revolutionizing how we code, how we percieve and frankly, there will be some incredible changes in that tech in the next few years.
3) Cloud. It’s incredible that we’ve got the next gen of industry revolution and people who get on board the tech will find themselves in great position to build careers off of it.
4) Bidirectional web. In the 90’s we had “Client-Server” applications that revolutionized the business world. Now that HTML5 has taken hold in significant roll-out numbers, we are seeing some HTML5 based technologies that are are allowing for “client-server web”. Microsoft dipped their toe in early with SignalR, but there are many techs now that do bidirectional support, and it’s only a matter of time before we start seeing revolutionary apps that will significantly alter our perceptions of how apps work.