Jeremy Schwartz, CFA, Director of Research, WisdomTree Asset Management
On a recent “Behind the Markets” podcast, we discussed the market outlook with Ed Mills, political strategist at Raymond James, and Tom Lee, founder of Fundstrat Global Advisors.
Mills believes we will come to a resolution on the China trade-war dynamics, but this ultimately will take longer than many expect.
Mills pointed out that, earlier this year, the market expected the trade deal to be completed before the midterms, that it would not cause disruptions to supply chains and that Trump’s tariffs ultimately would not be enforced. On all three issues, the market got it wrong.
He sees the Chinese deal being much more difficult—we are asking the Chinese to change their industrial policy, and while Mills believes China would be happy to “write a check” to get out of this bind, he does not see them changing their overall economic approach and thinks the situation will get worse before it gets better. A resolution could be years away.
In the second half of the podcast, we discussed some longer-term thematic opportunities on which Lee is focused. One of the reasons I invited Lee on the program was because I saw a headline last week that said he was wildly bullish in the short-run, so I wanted to see what catalysts prompted that view.
Lee saw indiscriminate selling in October that reached a level that almost always indicates a bottom in selling during bull markets. Lee admitted there are many worries and issues the market must confront, but he said that he sees a double-digit rally coming.
In terms of a broader thematic idea, Lee also believes we are in the midst of a broader shift to the value-style investing approach, which can last 10 to 15 years.
One of the drivers in this are “asset-light” businesses that did well during falling inflation environments that we’ve seen since 1980, compared with the “asset-heavy” businesses that do better during rising inflation. Asset-intensive businesses with high debt and assets on the balance sheet are rewarded more with inflation.
Lee sees a lot of the rotation between, for example, Health Care (an asset-light sector) and Financials (an asset-heavy sector) being explained by the difference in trends for inflation.
He also sees technology companies being in more of a traditional value sector and sees some of technology companies becoming more asset heavy in the future; a showdown could be coming between Financials- and Technology-sector companies as tech companies continue to invade the Financials sector.
Some of the other broader trends we discussed with Lee included:
- The underlying trends toward automation and why a global shortage of workers is going to make automation-oriented companies an absolute necessity.
- The impact of millennials on the longer-term economy and buying trends. 2018 was the first year that millennials earned more income than when they were dependents, and he sees this group as making up a super-productive workforce. He also sees them driving the housing sector over the next 10 years, with a pickup in home-buying going into 2026.
- We also discussed blockchain technology and the use case for cryptocurrencies. Lee sees cryptocurrencies as way more than some fad and believes they will have ramifications across the financial system.
This was a great conversation on both short-term and long-term market implications, and I encourage you to listen to the full conversation below:
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About the Author: Jeremy Schwartz, CFA, Director of Research, WisdomTree Asset Management is responsible for the WisdomTree equity index construction process and oversees research across the WisdomTree family. Prior to joining WisdomTree, Jeremy was Professor Jeremy Siegel’s head research assistant and helped with the research and writing of Stocks for the Long Run and The Future for Investors. He is also co-author of the Financial Analysts Journal paper “What Happened to the Original Stocks in the S&P 500?” Jeremy is a graduate of The Wharton School of the University of Pennsylvania and currently stays involved with Wharton by hosting the Wharton Business Radio program “Behind the Markets” on SiriusXM 111.