Our Biggest Economic Blind Spot
The markets are continuing to react to the headlines – the good and bad – as the summer’s slowdown in first-team participants is making it easier for the algorithms to move the averages.
Case in point: As we saw last week we were headed for some slight gains before Friday's brick wall – but the reasons for that scenario will likely dissipate by mid-September once everyone returns.
There are two reasons for that:
1) It will become clear they were not really "problems" to begin with (not large ones anyway), and
2) There will be far bigger monsters to write about and stoke fear over.
Needless to say, the meandering here and there does not really permit trends to get underway with any real momentum.
That said, Tech and Biotech continue to shine in the Barbell Economy structure. And I believe the future will make our perception of Tech into something far more than just a sector.
The New Tech
Technology will become a word whose scope expands much further than the way we think about it today.
Adding Communications as a sector will set the stage for these areas of the market to become larger and larger without the incessant shouting from the rooftops about the area being "in a bubble."
Don’t underestimate how this will change markets and your perception of them in futures years / decades just because our human instinct is to favour the norm, and grow reticent in the face of shifts in the landscape.
These changes aren’t going away.
That said, the impact of the expanding scope of Tech and Communications, the coming of age of Generation Y and the formation of the Barbell Economy – where the reins of economic control are handed over from the Baby Boomers to the Millennials - will not become clear to the masses for years to come.
To put that into perspective, just think about the coming impact of the Baby Boomers back in 1981.
No one did at the time, just as Gen Y is an enormous, positive and powerful blind spot in the view of our current economic landscape.
The changes racing toward us represent the largest and most radical shifts we have seen in our lifetimes.
But we should be positioning ourselves to embrace them instead of fearing them.
Further insight into the new "Communications" Sector from the S&P 500 shows you the seeds of the Gen Y shift beginning to sprout - just as we have said since 2014:
"The traditional sector investing landscape is getting an upgrade to reflect societal changes in communication. At the close of business on September 21, classifications for 26 Consumer Discretionary or Information Technology stocks will be changed in the Global Industry Classification Standard (GICS®).
“The old Telecommunication Services (Telecom) sector will disappear, and it will re-emerge as the new, expanded Communication Services sector. It will include telecommunication services companies like Verizon and AT&T; technology companies like Facebook and Google’s parent Alphabet; and media and entertainment companies like Comcast and Netflix, all to reflect the updated ecosystem of how we communicate and access entertainment today.
“As a result of these GICS changes, the Information Technology and Consumer Discretionary sectors are losing those aforementioned high-profile names, among others.
“In addition, “growth” will be redistributed, as shown here, creating new underlying exposures for investors to analyze when constructing sector-related portfolios. The chart below crystalizes the significance of this change.
“The Communication Services sector will become the fourth-largest sector, comprising 10% of the S&P 500® Index, and three out of the five FAANG stocks—Facebook, Netflix and Alphabet’s Google—will now be classified within this new sector, the most for any GICS sector!"
These changes will permit "tech" to become an even larger part of the marketplace.
Vast growth curves are ahead.
So pull that seat belt tight around you.
It’s going to be a bumpy ride.