Preview of Q4 Quarterly Market Report
Our Chief Investment Officer, Eric Cramer, gives a brief recap of the third quarter of 2019 and an overview of the markets going into the fourth quarter of 2019.
Thanks for listening today. Please join us for one of several upcoming BIP 2019 Quarterly Market Report presentations.
QUARTERLY MARKET REPORT PRESENTATIONS
DECEMBER 5 AT 12:00 PM
DECEMBER 6 AT 12:00 PM
Ever since the dawn of the industrial age over two centuries ago, each generation has witnessed an increasing pace of technological advancement. The evolution of physical and digital technologies has changed how we live so quickly that one lifetime can bear witness to an astounding scope of technologies. For instance, a child born into a world without airplanes would see humans land on the moon just 66 years after the Wright brothers’ first flight.
This phenomenon has become the most important story of the human condition today. The way people live has been forever changed by technologies. The impacts from the development of the cotton gin, the telephone, the automobile, the computer, and the smartphone are likely to be dominating nearly every waking minute of your day. Technology has been the key to winning wars, to deciding which economies will dominate the world, and to determining how much food we have to eat and how long we will live.
It has always been tempting to think that we have reached the pinnacle of technological achievement. But the next evolution can be unexpected, and now a confluence of technologies is about to change the way humans create and interact with technology in a way that may dwarf our amazing history. And so, the word “revolution” may be appropriate.
In the third quarter of 2019 the stock market struggled to move forward. The MSCI ACWI IMI Global Equity Index was down .18%. Bonds rallied for the quarter, due to economic concerns and the resultant falling rates, and produced a 2.27% return from the Bloomberg-Barclays U.S. Fixed Income Index. None of this detracts from what has been a stellar year so far in nearly all asset classes. In 2019, through the end of the third quarter, the global equity index was up 15.87%, and the fixed income index was up 8.53%.
But investors continued to be worried about the future. And increasingly, we are hearing clients wonder if it’s time to jump off of the train. That’s not the kind of decision anyone has ever been able to reliably make, and so we have to think long-term about our investment process. It forces us to ask, and answer, this question, “how can the stock market go any higher?” The answer is “technology!”
The fodder for the growth in technology has always been an interesting combination of human curiosity and our innate drive to change our world. Governments fund basic scientific research with the hopes of spurring the next big leap forward without ever knowing what the payoff will be. But profit is still the biggest influence on the speed and direction of technological advancement. One need only look at how socialist economies have fared in competition with capitalist economies to see some evidence for this.
What’s going on here? Why would this even be the case? Perhaps the key to understanding this history lies in seeing that the creation of new technologies often requires the input of significant resources. And in today’s increasingly fungible world, nearly every type of resource, including human talent and natural resources, can be quickly bought. And therefore, it’s actually money, the capital that is put at risk (and the organization of that capital to motivate human action), that is the biggest driving force for technological change. Profits from success in this endeavor determine which economies will win, which companies will win, and which individuals within capitalist economies will win.
In the next five years we are going to witness the unleashing of technological innovation that has been in development for years. From an investment standpoint, the winners are likely to be broad based, and in every sector and asset class. This change is right under our noses, but most of us are unaware of what is about to happen. Once it does happen, we will never be the same, and the stock market will have lots of reasons to go up. We look forward to telling you all about it at one of our upcoming Quarterly Market Report lunches or on the webcast.
Thanks for listening today. This is Eric Cramer, Chief Investment Officer for BIP Wealth, saying goodbye for now.
Disclosure: This communication contains general investing information that is not suitable for everyone and is subject to change without notice. Past performance is no guarantee of future results and there is no guarantee that any views and opinions expressed will come to pass. The information contained herein should not be construed as personalized investment advice, tax advice, or financial planning advice, and should not be considered a solicitation to buy or sell any security. Investing in the stock market and the bond market involves gains and losses and may not be suitable for all investors. The Global Equity index is the MSCI ACWI IMI Index, which is a free float-adjusted market capitalization weighted global index selected as the best available proxy for a diversified stock portfolio consistent with modern portfolio theory. Approximately 55% of the index is comprised of the U.S. stock market and 45% is comprised of international stock markets, including both developed and emerging countries. The “Net Total Return” version of the index is reported here, which means the index reinvests dividends after the deduction of withholding taxes, using a tax rate applicable to non‐resident institutional investors who do not benefit from double taxation treaties. The Emerging Market index is the MSCI Emerging Markets Gross Index. The U.S. Fixed Income index is the Bloomberg Barclays Capital U.S. Aggregate Bond Index, which is a broad-based benchmark selected as the best available proxy for a high quality, diversified fixed income portfolio suitable for a U.S. investor. It is comprised of the Barclays Capital U.S. Government/Credit Bond Index, the Mortgage-Backed Securities Indices, and the Asset-Backed Securities Index. It is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, with maturities of at least one year, and an outstanding par value of at least $100 million. The “Total Return” version of the index is reported here, which means that dividends are included and reinvested.