Investment Trends That Supersede Politics

November 4, 2020 - Max Osbon (4 mins to read)

While we are all focused on election changes, let’s take a moment here to step back and check in on some of the long term trends. An election date is a punctuation mark in time, and there is always broader context that one can look to for insight. Here are some thoughts on the big picture and other major recent events.

Engines of economic growth
As a reminder, while political turmoil persists there are plenty of talented and well funded entrepreneurs working to disrupt and advance our society. Here is a quick snapshot of a handful of high potential growth sectors today that will continue regardless of who is president:

  • Remote patient monitoring: tracking blood pressure, vitals, heart rate, etc. This is a $22B revenue market today and is expected to grow to $100B revenue market by 2025.
  • Electric motors: the environmentally friendly option for industrial and consumer uses. This is a $120B revenue market, expected to grow to $170B revenue by 2025.
  • Artificial Intelligence chipset: state of the art chips that are used to process AI. This is a $20B revenue market expected to grow to $190B revenue by 2026. Half of that growth is expected to be in the US and the other half outside of the US. The chip market is an entirely global market with half of the design happening in the US and almost all of the semiconductor production happening in Asia.

Almost all of the high growth sectors that we’ve surveyed have some relation to cloud computing, advanced data processing or artificial intelligence. This makes sense given where we are in the natural evolution of technology. Data collection and organization is a key to unlocking the next wave of cost savings, revenue generation and productivity gains.

Presidential bragging rights are randomly distributed
Here is the US stock market performance (Dow Jones Index) for the last seven party changes. You could say that the Democrats do the best (Clinton), but the Democrats also do poorly (Carter). You could say the Republicans are great for middle of the road returns (Trump and Bush) but then we get a different Bush, who was down -21.78%.

  • (R) Trump Performance While in Office: +47.62% increase as of Oct. 31, 2020
  • (D) Obama Performance While in Office: +148.23%
  • (R) George W. Bush Performance While in Office: -21.78%
    *(included extended GOP control of both the House and Senate)
  • (D) Clinton Performance While in Office: +226.58%
  • (R) George HW Bush Performance While in Office: +45.66%
  • (R) Reagan Performance While in Office: +135.53%
  • (D) Carter Performance While in Office: +1.25%

We urge readers not to put much weight on the impact of individual elections or individual presidential seats. Longer term political movements are more impactful. Anti-immigration policies, functioning checks and balances, and populism waves are our biggest concern today. These longer term political movements are in play every day. As important as any single election date could be, the trends are far more important.

When it comes to markets, Fed policy has the most direct and most immediate impact on returns. Right now Fed policy is very bullish and supportive of markets.

Chinese companies are at the mercy of their government
(Jack Ma upsets the Chinese Government)
The biggest story this week, 2nd only to the election, is the failed Ant Financial IPO. Jack Ma made a number of threatening and divisive comments about the current Chinese banking systems along with his vision for disrupting financial services. These comments stopped the IPO in its tracks. The FT said it best when they said, Beijing Is Still The Boss.

This event significantly damages the reputation of Chinese capital markets and will give pause to global entrepreneurs and global investors for many years. In the US, our entrepreneurs are almost encouraged to tease and criticize our major institutions and governments – that’s a hallmark of our open meritocratic capitalist society. Not in China. When you invest in China, you are in a partnership with the Chinese government. Another trend to keep in mind.

Three distinct areas above the election
The point of this article is to highlight the major forces at play over long periods of time in markets. Innovation continues. Fed policy is more important than who is president when it comes to market return. Thirdly, with all of the turmoil in US politics, our companies are still able to operate mostly independently of any direct government intervention. During dramatic times, it’s helpful to keep in mind what trends are underway.

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