Handicapping investors’ under- and over-reaction is not that complicated when looking at markets in hindsight. There has been no long term impact of destabilizing global events over a full market cycle, and with a long enough time horizon these events have offered a buying opportunity 100% of the time. Of course, applying this to real time investing becomes more trying and potentially hazardous!
The outcome of the most significant recent global events in Iran remains to be seen. The early beneficiaries of increased conflict in the Middle East are commodities including oil and gold, defense and cyber security companies, and consumer staples. These have all increased significantly relative to the S&P 500 since the U.S. eliminated the head of Iran’s Quds force on January 2.
Regardless of whether or not the subsequent de-escalation holds, the overall impact of Middle East tensions on global GDP has been shrinking over the last ten years as U.S. shale and other new oil sources have altered the supply/demand balance. Don’t get me wrong, a full scale disruption of supply in the gulf would probably drive oil prices above $100 and thereby take a significant bite out of global consumption, but even that sort of disruption would be short lived. The strong consumer, backstopped by ample central bank liquidity, should allow us to withstand such a shock without tipping into a recession.
Within the current framework of geopolitical risk and relatively high valuations, diversification becomes even more critical. Looking into 2020 and beyond, we continue to believe gold and long term U.S. Treasuries are our best hedge, while large cap growth stocks and cash-generating dividend growers provide the best upside opportunities.
Looking through our intermediate to longer term lens, we still favor 5G technology names, as the rollout will progress from its early stages this year into global reality over the next 3 to 5 years. The investment team continues to focus on this and other megatrends for the roaring 20’s, and to identify the best ways to take advantage of new technologies through asset allocation and security selection. Here are a few of those we have identified and are watching closely:
- Increased global abundance – people rising out of poverty
- Global gigabit connectivity
- Increase in the average human lifespan by 10 years
- Significant improvement in access to capital
- The growing ability to sense and know anything, anytime, anywhere:
- Augmented reality
- AI and machine learning
- Embedded Intelligence in everything
- Disruption of advertising
- Renewable energy
- Sustainable industry and agriculture
If you want to chat about any of these, please call me at 804-774-2087 or email me at Jesse.Ellington@middleburgfinancial.com anytime. Otherwise, know our investment team is digging in to translate these megatrends into superior returns for our clients.
Past performance quoted is past performance and is not a guarantee of future results. Portfolio diversification does not guarantee investment returns and does not eliminate the risk of loss. The opinions and estimates put forth constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.