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Demographic Trends: Positive or Negative for Stocks?

Matthew Ristuccia

Matthew Ristuccia

Chief Investment Officer and Portfolio Manager

Demographic Trends:  Positive or Negative for Stocks?

Two weeks ago I attended the annual Ned Davis Research (NDR) conference.  At this terrific two-day conference, I was able to learn, listen, and network with leading stock, bond, political, macro, and sector experts. The conference focused on the current environment, managing risks, and taking advantage of opportunities in both the short and long-term. Insights on demographic trends can help us accomplish all the above, so it is no wonder I found the session on demographics informative. Importantly, it connected with the long-term bull market theme I have discussed in various blog posts (most recently in the one dated March 28, 2019).  Here are some of the key takeaways from the session on demographics. 

Conclusion

  • Over the next 10 years demographic trends are favorable for equity markets.
  • This supports the long-term bull argument.
  • Millennials are now the largest generation in the U.S. and are entering their peak spending years.
  • Due to a high level of average education and student debt, spending and family formation has been delayed relative to historical generations.
  • However, data shows millennials have similar spending habits and desires as previous generations and the percent of income spent on student debt is declining.

Demographics within Bull and Bear Markets

Millennials are now the largest generation. There are 90 million people in the U.S. that were born between 1980 and 2000. 

The MY ratio (those aged 35-49 to those aged 20-35) rising and falling has historically been co-incident with long-term bull and bear stock markets. Basically, it is good for the economy to have more of its population in peak spending mode than those in low spending mode, and those aged 35-49 tend to be peak spenders and those aged 20-34 tend to be low spenders.

The 1980-2000 bull market in stocks coincided with the core of the Baby Boomer generation hitting peak spending years of 35-49.  The bear market from 2000-2010 was a period when the MY ratio was declining. We are now entering, over the next 10 years, a phase where Millennials will enter their peak spending years and the MY ratio will be favorable again after bottoming over the last 10 years.

There is alignment with demographic trends and the history of bull markets. We are ten years into this long-term bull market and demographic trends look favorable for the next 10 years. Historically bull markets have lasted about 20 years. 

More about Millennials

Some wonder whether Millennials spend differently than previous generations. Data shows they are essentially following the same trends as previous generations and have similar desires as previous generations.

Millennials are the most well educated, as a group, generation in history. This is a good thing!  It should lead to continued innovation and productivity. This leads to higher GDP per capita (better living standards).  However, they have more student debt than any other generation as well.  This hinders spending and growth.

The good news is that average income has risen more than average debt.  Average debt payments as a percentage of income is clearly trending downward.  This has only delayed the average age of family and house formation, but has not changed the desire for it.

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Oil and Equities: Using Macro, Technical, and Fundamental Analysis to Uncover Trading Opportunities

Tim Duchesneau

Tim Duchesneau

Co-Portfolio Manager & Investment Analyst

We believe that oil prices will be rangebound creating trading opportunities. We invest in specific oil companies through our Global Value, Global Growth, and Hedge Fund Strategies. We can also take tactical macro positions in our Argent Asset Allocation Strategies.

The Co-Portfolio Manager on our Global Growth strategy, Tim Duchesneau, leads our technical analysis efforts. He follows the oil market in depth to understand movements and help uncover opportunities. 

This year we have been profitable on stock selection within the oil space using a combination of macro, fundamental, and technical analysis to uncover opportunities. By combining these analysis methods, we can uncover opportunities others may not see if they just use either the macro, technical, or fundamental perspectives. We incorporate this “360 degree” coverage for all asset classes, albeit with most asset classes we take a longer-term view than we do with oil.

The Analysis

Below is the Ichimoku Cloud Technical Study overlaid on the heavily traded June Oil Futures contract. This study is used to forecast price action. Here is a high-level view on how this chart helped us and where we are today:

  • Technicals: In early January the price of oil moved above the Tenkan (blue line, a short term directional technical indicator).  To us, this signaled a reversal in price action from Bearish to Bullish.
  • Macro & Fundamentals: In January, high quality oil names were trading at attractive prices. Oil was at $45/barrel, below major breakeven points for Russia and Saudi Arabia and many onshore U.S. companies. Oil inventory data was leaning bullish as well. 
  • Other firms: Many firms we track upgraded their oil forecasts in March. This should support the positive trend for now. Technicals affirm this view. 
  • Our Actions: We entered (what are now profitable) positions in January. We are more likely to trim from here than to add.

Chart below shows the price of oil overlaid with the Ichimoku Cloud Technical Study for the past one year time period.

More Details:

The Ichimoku Cloud Study comprises five indicators. This includes Senkou Span A, Senkou Span B, Tenkan, Kijun, and Chikou.

Senkou Span A (purple line) and Senkou Span B (yellow line) show the projected movement of the oil price (white bars) 26 and 52 days forward, respectively.  Three other plots, Tenkan (blue line), Kijun (pink line), and Chikou (red line), are used as direction, support/resistance lines, and signal confirmation, respectively.

The Tenkan line represents the average of the highest high and the lowest low of oil prices over 9 bars (days in this case). To us, the Tenkan is the most valuable line as oil tends to trend upwards when the price is above the Tenkan line and tends to trend downwards when the price is below the Tenkan line for tradable periods of time. Due to this tendency, when the oil price moves back above the line it tends to stay above the line and signals a reversal. This happened in early January. This, combined with attractive prices on certain oil stocks and other favorable fundamentals gave us conviction to buy certain oil-related names.

The Kijun line is calculated similarly to the Tenkan, however it uses a longer time period (in this case 26 days). This can offer confirmation to the Tenkan about the direction of the trend.

In March, when Span A crossed above Span B it was even more confirmation that oil price action was in a strong, positive trend. Not coincidentally, this is where most oil analysts began upgrading their oil forecasts. 

From here, we may look to trim our tactical oil positions prior to the OPEC meeting in June, but exact timing will depend on the macro, technical, and fundamental data.

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IRS Issues Annual List of Tax Scams

Beware of Tax Scams!

While tax scams are especially prevalent during tax season, they can take place at any time during the year. Remember to keep your personal financial information private and be vigilant so you don’t end up becoming the victim of a tax scam. For more information on tax scams visit irs.gov.

IMPORTANT DISCLOSURES

Content prepared by Broadridge Investor Communication Solutions, Inc. copyright 2019.

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

 

The IRS recently issued its annual list of tax scams. The list highlights various scams that taxpayers may encounter, many of which occur during tax filing season. Here are some of the scams that are highlighted on the list.

Phishing

Phishing scams usually involve unsolicited emails or fake websites that pose as legitimate IRS sites to convince you to provide personal or financial information. Once scam artists obtain this information, they use it to commit identity or financial theft. The IRS will never initiate contact with you by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media.

Phone scams

Phone scams typically involve a phone call from someone claiming you owe money to the IRS or that you’re entitled to a large refund. The calls may show up as coming from the IRS on your Caller ID, be accompanied by fake emails that appear to be from the IRS, or involve follow-up calls from individuals saying they are from law enforcement. Sometimes these callers may even threaten you with arrest, license revocation, or deportation.

Identity theft

Tax-related identity theft occurs when someone uses your Social Security number to claim a fraudulent tax refund. You may not even realize you’ve been the victim of identity theft until you file your tax return and discover that a return has already been filed using your Social Security number. Or the IRS may send you a letter indicating it has identified a suspicious return using your Social Security number.

Return preparer fraud

Sometimes scam artists pose as legitimate tax preparers and try to take advantage of unsuspecting taxpayers by committing refund fraud or identity theft. It’s important to choose a tax preparer carefully since you are legally responsible for what’s on your return, even if it’s prepared by someone else.

Inflated refund claims

Taxpayers should be wary of anyone promising an unreasonably large or inflated refund. These scam artists may ask you to sign a blank return and promise a big refund without looking at your tax records or charge fees based on a percentage of the refund.

Fake charities

Groups sometimes pose as charitable organizations in order to solicit donations from unsuspecting donors. Be wary of charities with names that are similar to more familiar or nationally-known organizations. Before donating to a charity, make sure that it is legitimate. The IRS website has tools to assist you in checking out the status of a charitable organization.

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To Brexit or Not to Brexit? Does it Matter?

Dave D'Amico, CFA

Dave D'Amico, CFA

Dave is COO and Portfolio Manager at Argent Wealth Management, LLC

Backdrop

It’s been almost three years since the original United Kingdom referendum vote on June 23, 2016, and still today we are seeing daily headlines contemplating the resolution and how it will affect global economies and financial markets. Now is a good time to refresh our readers as to what this referendum means and how it may impact the markets. Let’s first remember the very negative initial reaction to this vote when it occurred. The chart below is a quick reminder of how poorly this vote was received in the global financial markets on June 24, 2016; the first day of trading after the June 23rd vote:

The United Kingdom EU membership referendum (i.e. Brexit) occurred on June 23, 2016; 51.9% of those voting supported leaving the European Union. This vote started a two-year process whereby the UK would leave the EU on March 29, 2019. This has since been extended to April 12, 2019. The situation today seems as confusing as it was initially over two and a half years ago with many asking, “What might we expect in the coming months and does it matter?”

Is Brexit Already Priced In?

After nearly three years of political wrangling and media headlines, the global financial markets have accepted Brexit. The markets have seemingly priced in the expectations of slower growth for the UK and global economies. Investors that have been allocated to international developed markets, often benchmarked to the EAFE Index (Europe, Asia & the Far East), have felt the market’s discounting mechanism over the past few years. The EAFE index has been a drag on globally allocated portfolios and today’s valuation levels reflect this underperformance. The global slowdown that has hurt EAFE equity returns has been internationally led and the “uncertainty” over Brexit is likely a big reason for this underperformance.  The United States financial markets have been the dominant global performers as uncertainties were lower and economic conditions more robust. The chart below shows the performance of major global indexes since the beginning of trading on June 24, 2016 through the close of market on 3/31/19.  Clearly the EAFE has been a drag on global performance

The Markets Simply Don’t Like Uncertainty

Brexit, whether it is a soft exit or a hard exit, is likely to be messy. We don’t profess to know all the ramifications, but from a common-sense standpoint, we do know that the financial markets just don’t like uncertainty. When there is uncertainty, decision making for both businesses and consumers slow. When decisions are delayed, or not made at all, investments stall and the result can often lead to economic slowdown. This is what has occurred and the chart below shows that since the referendum, the UK’s GDP slowdown has dragged the Eurozone while the U.S. has continued to expand

Led by UK business stagnation since the referendum:

Perhaps the Removal of this Brexit Uncertainty Helps the Global Economy and International Returns?

We know that we must expect the unexpected with Brexit as this situation has just been extremely complex and all the intertwined trade deals of an exit is daunting to understand.  The path forward could go down one of many roads and that may be priced in already.  The removal of the uncertainty may allow decisions to be made, stronger business investment, and may even allow for some forward progress.  As uncertainties are removed, the global economies are better positioned to succeed. In the meantime, the below chart shows that the U.S. market has become the most expensive given the outperformance of the past number of years. The UK, on a forward P/E basis, trades at 14X earnings which is very reasonable, and it carries a dividend yield of 4%. If growth could resume, perhaps the EAFE  index will finally perform!

Conclusion

Brexit is very complex and many more headlines are likely to follow. The chart above shows that the underperformance of the EAFE index and the UK may have priced in this negativity already as valuations reflect the slower growth brought on by this uncertainty. Global economies need more certainty and the hope is that removing the Brexit uncertainty is a step in the right direction towards clarity.  Perhaps this will then be followed by a U.S. / China trade deal further removing uncertainty from the global economy. In the meantime, Brexit has been so widely publicized and discussed that the market’s discounting mechanisms have likely priced in the eventual Brexit.

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Yield Curve Inversion. Now What?

Matt Ristuccia, MBA, CFA

Matt Ristuccia, MBA, CFA

Matt is Co-Chief Investment Officer at Argent Wealth Management, LLC

Headlines were made last week as the U.S. government (Treasury) yield curve inverted. This means rates on the short-end of the curve are yielding more than some rates at the long-end of the curve.

Investors are now pricing in that the Federal Reserve is more likely to cut rates than to raise rates this year. Investors are reaching for the safety of longer-dated “risk free” bonds as they expect enough of an economic slowdown that 2.4% on a 10-treasury is a fair price. This all implies the Federal Reserve was too quick to raise rates last year, and that was one of the major reasons we saw a 15% correction in U.S. markets in the fourth quarter of 2018.

Note the market is pricing in a zero percent chance that the Fed Raises rates this year, and good chance the Fed lowers rates in the second half of the year!

The global economic environment remains weak, and the bond market is reflecting lower global growth expectations.

Despite the inversion and growth fears, the stock market has rebounded:

The stock market has essentially sent the message, at least so far, that despite negatively trending economic indicators, it expects the economy to remain resilient and real GDP growth should remain in the range of 2.3%-to-2.7%. Clearly the bond and stock markets are sending different messages.

What should investors do with this conflicting message?

1.)  A yield curve inversion is a negative signal and should be taken seriously. The 1-year to 10-year inversion has only given one false slowdown signal since 1950.

2.) However, we remain in a secular bull in stocks; these tend to last approximately 20 years based on historical measures. Slowdowns do occur within long-term bull markets, as can be seen in the chart below, but cyclical bears within secular bulls tend to be shorter-term and less severe than other bear markets:

3.)  In addition, severe bear markets have historically been accompanied by one or two of the following:

  • A large valuation bubble (like 2001 tech bubble). Not present today.
  • A large financial imbalance (like the 2008 housing market collapse due to weak underwriting standards and overly complex securitizations). Not present today.
  • An oil price shock, like we saw in 2008. There was a major one in the 1970’s as well. This is unlikely. The rise of U.S. onshore oil and alternative energy means we believe it will be hard for oil to get much over $80 as there is plenty of profitable supply available at these prices.
  • An aggressive Fed. Although the Fed may have reacted too quickly last year, real rates (Fed Rate minus inflation) are still about or just slightly over 0%.  Therefore, the Fed remains accommodative.

Without any of the above present, if a correction does occur, a 20% +/- 5% type of correction is much more likely than a 2001 or 2008 40-55% type of correction!

Since we already experienced a negative 15% correction in Q4 2018 in the stock market, we are still in the camp that a retest scenario is a buying opportunity. The yield curve inversion adds to the evidence that, in the near term, a retest is more likely than a climb above 2018 market highs. However, a key investment tenet is not to be over-confident in any forecast. It is always important to remain flexible and follow the data.

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FDA Chief Resigns. Ramifications to your Portfolio

Dave D'Amico, CFA

Dave D'Amico, CFA

Dave is COO and Portfolio Manager at Argent Wealth Management, LLC

Last week, Food and Drug Administration (FDA) Commissioner Scott Gottlieb announced he was resigning in March to spend more time with his family. Most financial market participants and government officials perceive this to be a difficult loss. This change was not a complete surprise as rumors were floating in January of this year that he may step down. His tenure of just two years is not uncommon as evidenced in the chart below – it must be a stressful role! In his short tenure, he earned the respect of many in the pharmaceutical industry for being tough but still progressive in the FDA’s willingness to approve new medications. At the same time, he was a champion of addressing the opioid crisis and most recently seeking to curtail the growth of e-cigarettes and vaping in youth.

The importance of this role and the FDA is critical to the health of our citizens, but also poses significant investment ramifications across industry sectors including healthcare, pharmaceuticals, biotechnology, tobacco, the burgeoning marijuana industry and general public health overall. A progressive commissioner can help set the tone to bring new and exciting drugs to market for cancer, heart health etc. This can be beneficial to the population and patients, but can also be very important to stock appreciation. Conversely, a commissioner that is too tough on drug prices or too stringent on new drug approvals can cast a wide cloud over the industry and share prices. This potential overhang can be very challenging for investors. Tobacco companies clearly are directly impacted by the tone of the FDA commissioner as is marijuana. How do you think leadership at Altria feels after recently spending $12.8 billion for a 35% stake in e-cigarette leader Juul? E-cigarettes, vaping, hemp and CBD oil have all been in the headlines of late and represent growth areas of this industry. Will new leadership take a hard stance on marijuana, hemp and CBD oil? Will tobacco continue to be in the cross hairs, or will their lobbyists politically maneuver for a lenient commissioner? 

The Drug and Opioid Crisis

The drug crisis in America continues to grow as evidenced by the below charts of drug overdose rates and specifically for the opioid category. We have a major and growing problem and it is a very scary situation. This drug issue should be the National Emergency as it is destroying lives and our youth! Let’s hope the next FDA commissioner continues to focus his or her efforts on this critical issue facing our country.

Dr. Ned Sharpless Is Announced as Interim FDA Commissioner

Dr. Sharpless currently heads the National Institute of Health’s cancer division and directs billions for cancer research. At first blush, this could be viewed as good news for biotechnology and pharma in general, but it is too early to know as he is just the interim director. He has also been known to have a tough stance on tobacco in general and underage vaping which is consistent to Dr. Gottlieb. He doesn’t seem to represent much of a change over Commissioner Gottlieb, so the market, in the short term, seems to be comfortable. This remains a developing situation but one that is important for many of the industry sectors listed above. Investors should be aware of these changes and factor in this uncertainty, along with the risks and the potential opportunities, when making investment and portfolio decisions. 

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A Retest of Lows? Maybe….But When to Buy?

Matt Ristuccia, MBA, CFA

Matt Ristuccia, MBA, CFA

Matt is Co-Chief Investment Officer at Argent Wealth Management, LLC

We remain long-term bulls as previously highlighted in our blog post of February 14, 2019. Despite this long-term view, in that blog post I cautioned that “it would be in line with history to see markets retest lows before the start of a cyclical bull market.”  In our never-ending quest to understand markets and make sound, data driven logical decisions it is important to have a firm grasp on market history. Below is a more idiosyncratic look at the history of retests.

Data on Retests

Ned Davis Research (NDR) recently published some statistics on retests. The data highlights markets over the last 20 years with a similar pattern as the current market; a 10% plus rally after hitting a nine-month low within a downtrend (defined by a downward sloping 200 day moving average). 

Data on what has happened over the last 20 years in similar scenarios:

As of this writing and updated from the 2/20/19 data point in the above chart, the current rally from the lows put in place in late December has major indexes up approximately 16% off the bottom. This snapback is very much in line with the rally statistics in the above table. It has been 52 days since the bottom, also in line. These statistics are falling in line with recent history. The median decline from peak to final bottom has historically been 15.4% in this data set.  If we declined 15% from here the market would be close to the lows of late December. According to the table, the median decline lasts about 90 days. Will the future also be in line with history?

I would caution that the above table is a small sample size and three out of the five markets with similar characteristics occurred during a long-term (secular) bear market in stocks from 2000-2009. Bear markets within long-term (secular) bull markets tend to be more resilient than bear markets within long-term bear markets as can be seen in the table below.

Therefore, it stands to reason that the market may also be more resilient than the data from NDR would suggest and Investors might consider buying before the lows are fully retested!

Markets are the ultimate forward indicator, and technicals help us understand what the market is telling us. You can see in the below chart that the S&P 500 broke above its 200-day moving average. It has now held above this 200-day moving average long enough to suggest, in my view, that the risk we have a global recession due to an escalating trade war and policy mistakes, the main concern the market was worried about in late December, is likely off the table. If that is off the table, retesting lows is less likely. At the same time, RSI, a measure of how overbought or oversold the market is, is high (suggesting overbought). 

This overbought condition aligns with sentiment readings that suggest a lot of good news is already priced in. When markets are optimistic, more good news has much less positive impact than when markets are pessimistic.

This would suggest a pullback is more likely that a continued advance. Of course, let’s not forget that markets could go up from here. We are not over-confident in making market predictions, so we will continue to follow the data and be flexible in our approach. There are always opportunities created in choppy markets, and we stand ready to continue to execute on those opportunities as they arise. However, for now, odds favor a retrench and a buying opportunity above retest levels.

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Here Comes 5G!

Here Comes 5G!

What Is It, and How Will It Impact Consumers and Investors?

David D'Amico, CFA

David D'Amico, CFA

Dave is COO and Portfolio Manager at Argent Wealth Management, LLC

You may have heard or seen headlines about something called 5G and may be wondering what it is and how it may affect your life. If you haven’t heard, 5G is coming to a cell phone near you! This massive global infrastructure upgrade race has begun to crystalize and be deployed. Conversions will begin later this year and will really get going in 2020.

So, What is 5G?

5G (5th Generation) is the latest generation of cellular mobile communications. It succeeds the 4G (LTE/WiMax), 3G (UMTS) and 2G (GSM) systems. 5G performance targets high data rate, reduced latency, energy saving, cost reduction, higher system capacity, and massive device connectivity. The first phase of 5G specifications in Release-15 will be completed by April 2019 to accommodate the early commercial deployment. The second phase in Release-16 is due to be completed by April 2020. (Source: Wikipedia)

How Will this Affect our Lives?

The evolution to 5G will allow for much faster data speeds, faster internet searching, improved urban cell connectivity, and allow for a significant increase to the number of devices that can connect remotely to, and be controlled by, remote devices. 

Speed – The Obvious Benefit

Do we really need more speed? Isn’t the experience of browsing the internet from mobile devices already good enough? It’s hard to envision faster connectivity, but the following chart will provide you some graphical representation of just how much improvement is in store in this upgrade to 5G.

The Internet of Things (IoT) – More Devices Connected and Controlled

We won’t be just searching the internet or buying goods from our smartphones or wireless devices in the future. The speed of 5G will allow for many more devices to be connected and interconnected. This is known in the industry as the Internet of Things and it’s changing the way technology is integrated into our daily lives. IoT needs the fast data speeds of 5G to be successful. As it evolves, IoT will kick off many exciting improvements for consumers while transforming business. For a quick lesson on IoT, check out this video produced by the IBM Think Academy:

Self-Driving Cars – This network will be so fast that it may be able to coordinate self-driving cars. Truly autonomous driving with cars talking to networks and the internet would work somewhat like an automated air traffic controller for the streets. 

Medicine – Virtual doctors will be able to monitor patients and have meetings without time delays. This could change the entire cost structure of healthcare while improving lives.

Video Gaming – Why would anything need to be on a disc when download speeds can be this fast?  Brick and mortar retail companies like GameStop will have further questions around their traditional retail approach. How about virtual reality becoming mainstream and not just a vision or fantasy?

Video and Television Viewing – 5G speed will allow the ability to download movies and content virtually instantaneously, and will continue to transform movie watching, cable and the entertainment experience. Coupled with Virtual Reality, the consumer may be in for some really exciting entertainment enhancements in the coming years.

Investment Ramifications

The internet, mobile phone and wireless connectivity industry is not only changing and enhancing lives, but remains a massive growth opportunity for investors. It also poses continual threats to mainline traditional businesses. Cable companies, as we know, are significantly disadvantaged by the ability to view cable and movies from virtually anywhere. Traditional auto makers could see declining sales as autonomous driving goes mainstream. What about the Uber’s and cab industry? And cell phone manufacturers and operators? Who is in the lead? Samsung, Apple, Google, Huawei? What semiconductor companies will dominate the next decade? Will Intel reemerge with new technology or perhaps Qualcomm? Or will Nvidia keep the lead in the fastest, next generation gaming and entertainment chips? Will a new firm emerge? Will this upgrade cycle be the next boom in handset manufacturers, or will this hurt them? As everyone waits for the new 5G phones to roll out, will that hurt Apple and Samsung and other leading handset manufacturers? Or will this massive upgrade cycle be the next sales boom for these manufacturers presenting a great buying opportunity? So many questions! 5G and the Internet of Things will certainly improve, while at the same time disrupt, many industries across the globe. Investors will have to be very aware of this enhanced speed that is coming and how it may positively or negatively impact businesses, growth rates, competitive threats, and complete disruption of traditional lines of business. This can be both an opportunity and risk to investors.

5G is upon us and the race is on – so what do we need to do and when?

5G is being built out around the globe and China seems to be in the lead as they upgrade their towers and systems. AT&T, Verizon, et al are scrambling to upgrade their networks to claim their stake as the leading 5G provider. The U.S. has been slower but is beginning to ramp up faster. The first 5G phones are likely to hit the market this spring, and it looks like Android phones (Google) may be the first to market. Apple is lagging and likely won’t have a 5G phone until early 2020. Apple has also been mired in a legal battle with Qualcomm and this may end up hampering Apple’s 5G efforts as Qualcomm emerges as a leading 5G chip maker. However, until the 5G network is better built out, the phones won’t add much value. It looks like 2019 will be a transition year and 5G will likely take full hold in 2020. Buyers of smartphones and investors should all be aware of this.

5G phones, when they roll out, will continue to work with the existing 4G and LTE networks currently in place. But not vice-versa. So, if you have an old 4G phone, you will need to consider when it is best to upgrade. It is hard to envision the need to upgrade until at least 2020, but consumers should understand this is on the horizon, and should ask these questions before buying their next smartphone or wireless device. 

Technological enhancements and mobile connectivity have been an amazing growth industry and one that has transformed lives, mostly for the better. 5G is a massive upgrade that will allow for continued evolution, more connectivity and more devices. This should be fun, and investors will have to continually monitor progress and weigh the opportunities and the risks accordingly. 

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Is the Volatility Over? The BIG Picture:

Is the Volatility Over? The BIG Picture:

Matt Ristuccia, MBA, CFA

Matt Ristuccia, MBA, CFA

Matt is Co-Chief Investment Officer

  • We are likely in a cyclical (short-term) bear market within a long-term (secular) bull market in stocks:
  • Birds Eye View: What we have seen in equities over the last year is in line with historical bear markets within secular bull markets in terms of time and percent loss (Source: Ned Davis Research):
  • But Didn’t Markets Peak in October? No!  Most markets peaked in January of 2018.  That is a full year of bear markets for most indices!
  • A Retest: It would also be in line with history to see markets retest lows before the start a cyclical bull.
  • History rhymes but does not repeat: We have had one of the longest expansions in history, which gives pause to the call that the next bull market will be as strong as the average.
  • When to buy? Drawdowns greater than 20%-25% usually include either high valuations/major asset bubbles, an aggressive Fed, and/or an oil shock.  None of that exists today.  Therefore, if we retest lows set in December we are likely buyers. 
  • Risks: Main risk today is greater than expected deterioration in the economy due to higher than average geopolitical risk and potential policy errors.
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Highlights from CES 2019

Tim Duchesneau

Tim Duchesneau

Tim is a Co-Portfolio Manager and Investment Analyst

As always at CES, there were many innovative new consumer gadgets and concept ideas from some of the most cutting-edge companies in the world. These companies are leading the way in terms of new technology related to robotics, smart homes/smart cities, AI (Artificial Intelligence), AR (Augmented Reality) and VR (Virtual Reality).

Molekule is one of these very interesting, emerging companies. Molekule has made great strides in smart home devices in terms of reducing pollutants in the air. Their studies indicate that the air inside a building or home can be 5x more polluted then the air outside (their data has been approved by the U.S. EPA). Studies show that 25% of people are allergic to the air in their homes and aren’t even aware of it. Additionally, their studies show that poor air quality in homes and offices can increase the risk of common colds by 56%! Most people believe that the filters in their HVAC systems are enough to clean the air, but these filters actually enhance the problem by continually recirculating polluted air. Unlike most air purifiers that rely on HEPA filters, Molekule’s proprietary Photo Electrochemical Oxidation system, or PECO destroys pollutants by breaking down their molecular structure. This technology may change the way we clean the air in our homes and offices.

Another interesting standout company was HTC and their efforts to implement AR and VR into businesses, specifically healthcare. For instance, most orthopedic surgeons specialize in one companies’ replacement products (hip, knee, etc.) as the surgical process is unique to each manufacturer. HTC has developed technology using VR and AR, that allows surgeons to simulate replacement surgery without ever coming into contact with a live patient. As their training technology gets adopted, the barriers to entry for surgical replacements will begin to erode and patient options will increase. In addition to expanding surgeon and patient options, this training technology may hold an additional benefit; increased competition among the manufacturers will likely lead to advances in orthopedic replacement products. The utilization of AR and VR to train, educate and simulate real life situations has significant long-term benefits across industry sectors – this is just one example of what the future may hold.

Lastly, one of the biggest focal points of the CES Conference, and the only “game changer,” in my view was the evolution of driverless vehicles. The message from most car companies was that they are not yet ready to implement the more advanced level 4 driverless technology. One of the reasons is that when polled, less than 50% of consumers said they would ride in a driverless car. As a result, most car companies are implementing Nvidia or the more basic ‘level 2’ driverless technology. This includes more basic features such as lane assist, adaptive cruise control, emergency breaking systems, assisted parallel parking systems and other technology already implemented into the higher end car market. Thus, it wasn’t a complete surprise that the introduction of fully driverless vehicles appears to be years away from production. Technology is not the problem, but rather consumer acceptance which will restrict demand in the short-term.  Autonomous vehicles are game changers but consumer acceptance as well as reluctance from those who make a living driving vehicles (taxi drivers, truck drivers, etc.) are slowing things down. What we have learned from revolutionary technology, however, is that although acceptance may be slow, eventually it will take hold completely as it just improves lives.  Improving safety, efficiency, and increasing productivity will ultimately prevail. We may have to wait a few more years for the more advanced, completely autonomous vehicles, but I would expect autonomous driving to be a very large growth trend around the world over the next 10 years.

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