By Bill Studebaker, CIO & President, ROBO Global
There is much to be grateful for this year, and the new market highs that came in November were certainly on the list. And yet, listening to all the worries about the market, you would never think 2019 has been a great year so far. In the month of November, the ROBO Global Robotics & Automation Index (ROBO) tacked on a +3.97% gain, while the ROBO Global Artificial Intelligence Index (THNQ) rallied +7.06% vs. the ACWI’s +2.42%.
From a macro perspective, it seems like the market is caught in a balancing act between a strong consumer and a weak manufacturing sector. As a result, November saw investors stuck in a holding pattern (although I kind of like any pattern that pushes equity prices higher). With earnings now behind us, investors are shifting their attention to three main sticking points:
- The implications of US 2020 elections and the ongoing Brexit saga
- Powell and the Central Banks easing globally
- Geopolitics and the current trade debacle (This seems to be a persistent dangling carrot; as I asked back in September, when will investors stop waiting?)
While trade tensions began to escalate once again in the first days of December, things held steady throughout November. That reality, combined with an easing of monetary policy for the first time in 7 quarters, helped lift the outlook for global growth from 1Q20 on. This year's disappointing tech IPOs in the US and WeWork's failure to go public were both positive signs of market discipline and investor vigilance. Oaktree Capital's billionaire co-chairman Howard Marks’s comments on WeWork hit the mark: "I think [the failure] was a success for the market. This is a positive sign that the market is behaving as it should… Asset prices are high but not absurd… I don't think we're in a bubble. I don't think the conditions today are extreme or crazy. I don't think we have to have a meltdown or a crash."
At ROBO Global, we certainly don’t see a crash coming in robotics and artificial intelligence. Why? Because the opportunity set and market penetrations are continuing to expand. Perhaps the best example of this is the extreme growth of automation. Specifically, e-commerce and warehouse automation—two sectors that are literally bursting at the seams—have a direct impact on the all-powerful consumer. For years now, Amazon has been the driving force behind warehouse automation innovation. Its Kiva robots helped the company usher in an era of astonishing shopping convenience with the introduction of two-day shipping via its Prime membership service back in 2005. Amazon then upped the ante in June of this year by offering one-day shipping on many items. To compete, other retailers were forced to follow suit. It’s a race in which there is one clear winner: consumers. As Morningbrew aptly reported last week, “If warehouses are the unsung heroes of 21st century shopping, then artificial intelligence and automation are the spandex suit and cape enabling faster and smarter logistics networks.”[1]
Consumer response to this new level of automation has been every retailer’s dream. The US holiday-shopping season has always been an important indicator of economic strength and consumer confidence. In 2018, US consumers spent a record $850B in the weeks between Thanksgiving and Christmas—a 5% increase over 2017 and the largest sales jump in six years. Based on Black Friday numbers, 2019 looks set to be another record-breaking year—with online shopping playing an increasingly important role. According to early numbers from Adobe Analytics, Black Friday sales this year topped $7.4B, while Cyber Monday delivered more than $9.4B in sales—a nearly 19% jump over 2018.
This is the kind of growth that should be a wake-up call for every investor. The party is just starting for robotics and artificial intelligence, and the future is brighter than ever. Now is the time for investors to get positioned for what lies ahead.
[1] Warehouses are Ground Zero for Automation, Morningbrew, November 27, 2019