By Bill Studebaker, CIO & President, ROBO Global
Once again, it seems like we are climbing the proverbial wall of worry. And yet, the price correction that typically follows the climb is nowhere to be seen. In the big picture, you could argue that investors seem to be stuck in one long waiting game. As I asked last month and continue to ask myself over and over again, what on earth are they waiting for? And why?
There’s little doubt that the media continues to play a significant role in instilling fear in investors’ minds (“fear sells,” after all!). If you listened to the media pundits, you’d be certain we are headed straight toward a recession—if not already in one! Between the trade war, Brexit, US political divisions, and other geopolitical and macro uncertainties, fear of the unknown future has made the recent historic rise of the US equities less than satisfying for many investors. Now is the time to wake up and digest what’s really happening.
Despite investor reticence in the face of this subdued backdrop, the S&P 500 closed the month at another record close of 3,066. And the US equity markets were not alone; the move was global, with markets in Switzerland, Brazil, and India hitting new all-time highs, and France and Germany delivering their own 52-week highs. I’m happy to report that the month of October saw the ROBO Global Robotics & Automation Index advance 3.91% vs. the ACWI’s 2.74%.
Interestingly, on November 1, the US market saw 422 new highs and 69 new lows. Even as I write tonight, the DOW just topped its own record, closing at 27,462. The media can paint any picture they like, but this is not what a bear market looks like. This is not a topping process! To remember what the beginning of a bear looks like, simply look back at 4Q2018. In late October, the S&P 500 dropped sharply, falling a whopping -9.88% on October 29 from an all-time high it had hit barely a month before. An “inevitable recession” was declared by many, and investors hit the brakes. What’s happened since then? The market danced sideways for months—until now. As we head toward the end of 2019, the advance/decline lines are steadily making new highs. The troops are decidedly not in retreat.
The jobs numbers support the fact that there is no recession on the horizon. Non-farm payrolls rose by 128,000 in October (exceeding earlier estimates of 75,000), and payroll numbers for both August and September saw upward revisions, jumping from 168,000 to 219,000, and 136,000 to 180,000, respectively. In the face of a slight rise in unemployment (driven in part by the expansion of labor force participation), sluggish wage growth, and a downtick in core PCE inflation that influenced the Fed to make another cut to interest rates, this upside surprise in jobs was more than welcome.
Interestingly, the S&P 500 forward earnings dropped $2B for the month—but that change was largely the result of earnings misses by Amazon and Google. And yet even their respective declines weren’t all bad news. Amazon reported a 26% decline in EPS and missed estimates, but the company also reported that the drop was largely the result of necessary infrastructure investments designed to fuel long-term sales growth by reducing Amazon Prime delivery from two days to one. Google also missed estimates, reporting $10.12 EPS versus an expected $12.42, but there was no other news to surprise investors. That said, despite the news, FAANG forwards remained unchanged for the year. And while FAANG stocks comprise more than 50% of the S&P 500’s tech sector, there are plenty of other disruptive technologies in the space, all fueled by robotics and smart automation, that are performing well above expectations. Ambarella. Intuitive Surgical. Teledoc. These companies and many others are setting the stage for tomorrow. (To learn more about the growth potential of disruptive technologies, read this recent article from ROBO Global CEO Travis Briggs.)
From my perspective, I believe we are at an important juncture. While the clouds do seem to be lifting, in my 25 years in working in finance, I have never once seen a market that prompts the “experts” to say that the coast is clear. International equities seem to be making a comeback after trailing US equities for nearly a decade, making globally diversified investments a must. 3Q2019 earnings have surprised thus far, but earnings season is still in the early innings and much remains to be seen. Brexit, US/China trade, and the impeachment inquiry in the US are all wild cards that have the potential to create headwinds in the months ahead. But while it’s important to look carefully at the markets, RAAI (robotics, automation, and AI) remains one of the most important and impactful trends in history. For long-term investors who understand this massive potential, there is only one clear choice: invest now to take advantage of the growth of robotics and artificial intelligence.
What are you waiting for?