Market Commentary for the week of July 17, 2023

Standardized or Transformative?

Among the many lessons confirmed in a post-pandemic world is that change is inevitable.  Throughout history, adapting to a transforming world is a constant.  How one deals with transformation, how one feels  about transformation, is unfortunately also a part of our evolution.

As the markets deal with a rearranging landscape, and a rebalancing of sector leadership, it has gone through two distinct phases since 2020: (1) fighting to hold on to standardized norms and (2) quickly adapting to a new world order.  Indeed, the future of investing is now a function of our ability continuously to respond to the variance and magnitude of these shifts.  Whereas there is an element of “artistry” to that endeavor, we still must understand how the integers align and how to create a new science from what we once assumed to be so.

The biggest macro adaptation I see is that the global pandemic reinforced the notion of “one world” interconnected.  Although practices and policies of individual nations is significant, no matter the country of origin, diversity and cooperation is the hallmark of an even flow of commerce.

Therefore, sometimes being uncomfortable is a valuable tool in how to get from one place to another when seeking solutions to global inefficiencies.  It might mean that one group or another feels “left behind” at any moment in time, but it also leads to innovation and advance.

As an example, the global workforce was nearly decimated during the pandemic because of shutdowns and quarantine concerns.  However, we saw how efficiently technologies and local small businesses modified the landscape to relieve the distress in our communities.  In some instances, the “disenfranchised” became the heroes in their own story….the underbody of the economy rose up to save the majority.  The most powerful surge in employment came not from the large corporations but in the pioneering small business community that kept local goods and services thriving.  Each time that there has been disruption in the system, the bottom-up finds the capacity to rebuild and bounce back.

Secondly, there has been a disproportionate obsession about inflation and about how our politicians and central bankers “should be” addressing it.  Let’s be clear, inflation is an insidious tax upon the purchaser.  But its occurrence is normal.  In our uniquely particular times the backlog in supply and the buildup of demand exacerbated by the pandemic caused prices to skyrocket….no doubt too abruptly.  But I would be willing to wager that for those of a certain age your first Chevrolet cost less than $30,000; your first Callaway driver cost less than $175; your first home cost less than $100,000; and your first McDonald’s cheeseburger cost less than $1.00.  In other words, obsessing over cyclical inflation might be an exercise in futility.  Accept that higher costs over one’s lifetime, and higher interest rates, are the prices paid for doing business in an expanding economy.  Already, the skyrocketing inflation data is beginning to abate.  Our research efforts to quantify these whirlwind pressure shifts in the economy most likely will help us understand when to expect volatility in the financial markets’ secular cycles.

 So, are we in a new paradigm period (how many times have we heard that phrase uttered in the last 30 years)?  Is this truly a different set of circumstances?  We can’t know that now….perhaps only in hindsight.  But we do know that just in the last two generations education and technology have taken us to outstanding breakthroughs.  Recall, there was no internet when I started my career on Wall Street over four decades ago!  I used to trek on up to the public library during my lunch hours to do research.

Change is ephemeral.  Societies must learn to cope, adapt, learn, and feel a sense of comfort with skills demanded of them as history unfolds.  The capital markets play their part by providing funding sources for new technologies.  The “Street” must also respond by making these technologies affordable and available to a broader spectrum of the public.  Food, healthcare, infrastructure, climate, water, and energy are sectors that we see as capable of having that kind of thrust which brings transformation to a modern society.  More and more, socially responsible themes are becoming part of the political and economic lexicon, and the world is finally beginning to acknowledge their relevance, both to social good and to profit delivery.

The pandemic and its after-effects were felt by everyone, irrespective of age, region, or social status or hierarchy.  Thus, the possibility of moving “off center”, to feel that sense of discomfort, is also a current pandemic-sized issue.  There will be winners and losers in this battle, but the incentives for success require investors to strap in and seek opportunity from the rubble.