As part of our investment analysis, we often meet with industry analysts and Strategists on the Street, to compare and contrast our own internal strategies. I had a very engaging meeting with Ed Yardeni this week in San Francisco. Ed is a bit of a Wall Street legend, having been Chief Investment Strategist at Prudential, Deutsche Bank and EF Hutton, as well as a member of the Federal Reserve.
Yardeni shares our investment outlook: after a strong run, stocks are due for a breather. We still feel good about the prospects for the year, but Q2 has been a menace for the Market the last 3 years. Yardeni also believes earnings estimates are a little ahead of themselves, and that downward revisions could put some near-term pressure on the Market. We’ve been lightening up on positions in anticipation of some sort of correction, perhaps earnings season will be the catalyst.
My biggest takeaway from the meeting was validation of this new Productivity Revolution taking hold in the US. We discussed it in our Winter Newsletter. It’s being led by the Energy renaissance, which is driving job growth, trade deficit reductions, lower emissions, cheaper costs and more stable supplies. US manufacturing is back, and companies are no longer out-sourcing and in fact are now in-sourcing. His sense is that Washington has finally woken up to what the Market has been saying, and sees greater adoption in bipartisan fashion. It’s still early in this potential game changer that has the US the best positioned economy around the globe.
The other area for the Productivity Revolution is in Health Care, and it’s driven by technological innovation to meet the demographic tidal wave of our retiring baby boomers. He called it the “BRAIN” revolution, which stands for Biotechs Robotics Artificial Intelligence & Nanotech. Advanced medicine and medical devices are increasing longevity, allowing people to live higher quality lives with active monitoring by machinery. But it comes at a cost. Technology is competing with cheap labor, and winning. Income inequality in the US will only get worse in his estimation. Health Care expense is the one thing that could break the US economy, which is why it’s at the top of his list of concerns.
Technology is the biggest driver of growth in the US. It’s having a pronounced impact on our economy and our daily lives. But it does come with a cost. There are definite investment implications, and we are focused on staying ahead of the curve to understand how it will play out and make sure it’s reflected in your portfolios.
Have nice weekend. Happy St. Patty’s Day.
By: Mike Frazier