We just got through two very tumultuous years for the markets; down a lot in 2022, but up a lot in 2023. The markets were bifurcated with defined winners and losers. For example, techs were pummeled in 2022, but rallied strongly during 2023. Certain sectors, including financials, struggled mightily without much recovery in 2023 due to the minor banking crisis in Q1 2022.
Also, prompted mostly by a hawkish Fed in 2022, bonds were down as much as stocks, but did not recover much in 2023 until the Fed signaled the potential to turn more “dovish”. During the past two years the economy has resisted falling into a recession and inflation has receded nicely. Additionally, all of this capital market behavior co-existed with troubling geopolitics and wars. So, where do we go from here? Do any “bets” make sense in this economic and market environment?
There are plenty of forecasters (prognosticators?) out there. We need to avoid “driving through the rear view mirror” so I favor the views of big thinkers who really look forward. One such analyst is the (infamous?) Cathie Wood of tech investor fame. She recently proffered her views of the future on a TEDTalk and it is well worth a listen on Youtube.
In it, she focuses on her identification of “five innovation platforms” that are evolving at the same time: artificial Intelligence (AI), robotics, energy storage, blockchain, and multiomic sequencing. The growth potential “reminds us of Amazon, 20-25% compound growth over 20-25 years” that potentially could be “sustained forever”.
One such revolution is the potential that exists in autonomous taxi platforms that converge energy storage, AI, and robotics. The impact on transportation and business logistics is immense with “mid-boggling numbers.” Moreover, in her view, this productivity-generated real growth is disinflationary, if not deflationary.
In fact, Cathy Wood is blunt when she says she believes there is enormous productivity growth “the likes of which we have never seen” and “most people think we are crazy when we say things like this --- but we really do believe that real GDP growth around the world is going to accelerate from that 2 to 3 percent range into the 6 to 9 percent range and a lot of that will be productivity-driven.”
Ms. Wood closes with her final recommendation: “Get on the right side of change and hang on for the ride. Because truth will win out and the opportunities are enormous.”
D&A believes in long-term strategic investing to help investors achieve their goals consistent with their time horizon, risk tolerance and special considerations. The views of Cathie Wood are compatible with our philosophy as we both have a long term time horizon. A fully diversified exposure to US and global equities will allow investors to capitalize on this view without adverse idiosyncratic risk exposure.