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TRANSCRIPT
Matthew Carr: Hey, everyone. This is Matthew Carr, Chief Trends Strategist for The Oxford Club. I’m here with my colleague and fellow Editor at Strategic Trends Investor and the Energy and Infrastructure Strategist for The Oxford Club, David Fessler. Today we’re going to talk about our takeaways from the fourth quarter of 2019 and whether there’s anything that can kill this long in the tooth, old, gray bull market.
It’s amazing to me that the Dow Jones Industrials, the Nasdaq, the S&P 500 and the Russell 2000 are all at these new all-time highs. It’s unbelievable that we’re within spitting distance of 30,000 on the Dow. Ten years ago, if someone would have told me that that’s what we’d be facing today, I’d be laughing in their face. It’s been this really amazing run. So, Dave, let me ask you this, because you’ve just simply been crushing it. What was the biggest takeaway, for you, from the fourth quarter?
David Fessler: Well, and I’ll extend that through earlier into the year, and I can sum it up in one word: technology. If you look at a chart of technology versus the S&P – and not to say anything bad about the S&P, because they’d had a banner year – but if you look at the technology, the Select Sector SPDR if you will, it’s up double or triple what the standard S&P is.
And you know, it’s funny, I get people asking me, “Why aren’t you invested more in international stocks?” And I said, “Well, go look at a chart of the stocks, 600 for the last several decades, and all it does is oscillate around the mean.” It goes up and it goes down… It goes up and it goes down… But it doesn’t go up very far. And the highs aren’t higher highs and lower lows. They’re just the same. I saw it on TV the other day, and I thought, “Well this explains…”
It’s an easy way to just say, “I’m not going to invest in international stocks” or “I’m going to be very picky.” I mean, we have one, as you know, in our Strategic Trends Investor portfolio. It’s the windmill company, and it’s doing very well. But you know, the bulk of them are just not.
So it’s like, well, where can I put my money? Where you have it right now: in U.S. equities. There’s just no better game in town. And I don’t think that’s going to change anytime soon. I mean, look at how well the market has held up throughout this whole impeachment process, which, whether you agree with it or not, as an investor, you have to be conscious of it and wary of it. But the markets basically say, “Ah, ho hum.” You know, it’s just another day in the life of Trump, and we just keep going. So yeah, for me it’s technology, and I see that just continuing.
Matthew Carr: Yeah, and I’ll also jump on the technology bandwagon here. You know, Europe doesn’t have a “Google” like the U.S. does. Europe’s “Google” is Google. Same thing with Apple. So that’s always been a big driver of the markets. For me, from a trend trader perspective, I’ve actually found that in the fourth quarter, we’ve really seen what we want to see from the markets. The Dow had a really great November. You know, we ended up at almost 3.5%. That’s really much in line with what we’ve seen over the last several years. The Dow has risen in November seven years straight, eight out of the last 10 in December. You know, we’re right in line with those historic averages. So the market is really behaving the way that it should, despite all of these sort of headwinds that you mentioned.
We were talking about impeachment, and we’re talking about the U.S.-China trade deal, which there were a lot of questions about going on in the fourth quarter. I still think there are some questions about that component. I think the U.S.-China trade will be something that will be with us for years. I don’t think this is something that’s going to be resolved very quickly. But the U.S. economy continues to perform strong, unemployment is at these near half-century lows, our holiday sales are at record highs. You know, one of my favorite companies, Shopify, reported that its global e-commerce sales on Black Friday and Cyber Monday totaled $2.9 billion. That was up 60% year over year. That stock has been flying this year.
So I think the fourth quarter has really seen the market kind of rebound and normalize from the devastation that we saw all the way back in late 2018, where we had that massive 20% sell-off.
So looking ahead to 2020, what do you see? Do you think that the bull market dies? Do you think that there’s any sort of slip or stumble, or does it keep continuing to chug higher?
David Fessler: I think it goes higher. I search around for reasons to convince myself that it’s not going to go higher, and I can’t really find any good ones. Certainly, there are always geopolitical risks to anything. But in these days of algorithmic trading, any new information that comes out about anything gets baked into the markets within milliseconds. And so say, “Well, I’m not really sure the market reflects that.” Well, if it’s news, it’s reflected. Now, maybe in the long term you could argue that once the trade war is finally over… I think the trade war is just going to do a slow fade away. And once again, the market doesn’t seem all that fazed by it. Sometimes it’ll bump up a couple hundred points if Trump mentions those two words in a tweet, but other than that it’s basically taken all of that in stride. I mean, it’s a pretty resilient market right now, and I just don’t see that changing. And I think there are a few new things that I’m looking at in terms of trends that I think are going to really help drive the market higher in 2020.
Matthew Carr: So that trade deal… you’re talking about China committing to purchasing $200 billion worth of commodities over the next two years, 2020 and 2021. A portion of that will be those ags that have seen the big decline. That’s what really hit the American farmer. And I think that spells well for a lot of companies like John Deere, a lot of those big agriculture producers. For me, my expectations are somewhat…
David Fessler: I’ll just add to your comment about agriculture, and that is that one of the things that they are doing, which is recently new or will be when they actually do it, is they’re going to start buying chicken from U.S. chicken producers. So Pilgrim’s Pride is getting a bump up on that, and a few of the other big chicken producers as well. Is there anything going to change after the trade war? It’s hard for me to imagine there’s going to be any massive structural change in China. They’ll say they’re doing this and doing that, and then the trade war will fade away and eventually we’ll get back to some sense of new normal, whatever that turns out to be. But it’ll probably be a little better. I don’t think there’ll be any worse than where we are today, certainly. But it was a lot of it… and it still is a lot of effort on the part of the U.S. and China to come to some kind of an agreement.
Matthew Carr: You’ve mentioned trends there, and that’s something that kind of tempers my expectations in 2020. Let’s be honest, momentum begets momentum. We had a really fantastic 2019, and everyone loves to buy into a rising market. But some things that kind of give me pause are the fact that we have this looming U.S. presidential election, and this is probably going to be another really divisive one. I expect that to weigh on the markets as all those policies come into play. And I also think about the fact that we had that massive sell-off in 2018 in that fourth quarter, where from September all the way through December we lost like 20%. And a lot of that early rise that we saw in 2019, that was just recovering everything that we lost during that big pullback.
We gained all that that damage done back by about the end of April, and then everything has kind of been this start and stop, sort of grind higher. So I know for me, as a trend trader, that when we look at the U.S. presidential election cycle, in election years the market has been a bit softer – 2.8% has been the average since 1988. So that puts me in that little negative to single-digit territory. Obviously, it’s going to be really hard to replicate that big gain in 2019. But you talked about some trends…
David Fessler: It would not surprise me to see our growth in 2020 revert to the mean, if you will. We’re still going to have growth, and it’s going to be good growth. And there are still going to be opportunities, as there are every year, even in down markets to make money. But yeah, I don’t think we’re going to see another 2019 next year.
Matthew Carr: What were the trends that you saw that you really liked?
David Fessler: Basically, my big investment thesis for 2020 is renewable energy and electric vehicles (EVs). You know, they’re kind of tied together. I kind of view EVs as a subset of renewable energy, but there are so many EVs coming out on the market now. It’s no longer just going to be Teslas. It’s going to have some meaningful competition starting in 2020 that really didn’t materialize this year. And Tesla was certainly laughing all the way to the bank and confounding critics because it’s selling all the EBS it can make and it’ll probably enjoy the ability to do that for the next couple of years. I point to Tesla as one of my prime examples of a company that… Back in 2013 when the stock was trading at $35 a share, and I told my subscribers at one of our Private Wealth Seminars, I said “If you buy a thousand shares of Tesla today, in five years’ time, you’ll be able to buy any Tesla model you want.
And it came to pass because Tesla is up again today –almost $390 a share, or something like that. But I think, frankly, if you did that today, again, you bought $10,000 worth of stock in five years’ time, you’ll be able to buy the new cyber truck if you want. There’s plenty of upside there. And, of course, now there are other manufacturers, but in addition to that I’m focusing on the EV supply chain where I think there are quite a number of companies – like battery makers and so forth, battery materials, providers. You get into some of the materials stocks, and then renewable energy and wind power. Offshore wind is just getting started here in the U.S., and it’s off with a bang. And there are now plans for close to a dozen offshore wind farms on the East Coast.
Over the next five years, we’re going to see that whole sector… they’re building port facilities. I mean, there’s a tremendous number… thousands and thousands of jobs associated with just offshore wind that are coming to pass. We’ve got onshore wind, and we’ve got solar. Residential solar is picking up. Energy storage, which Tesla obviously is playing a big part in. So that whole renewable energy sector is just – I’ve been talking about it for 10 years. More than that, ever since I’ve been an editor. And it’s now finally getting some serious steam up, and I think it’s a great place to park some growth cash for the next four or five years. You know, you have to be selective like anywhere else, but there are some real opportunities ahead of us there.
Matthew Carr: Tesla has had a fantastic last six months. The stock has practically doubled during that time, and we’ve seen really good moves from all those wind farm makers. Also, I agree with you. I think, especially with the U.S.-China trade deal, kind of making some headway there – that really speaks volumes to the upside that solar producers have over couple of years. So why don’t we go and finish off on this fun sort of note. What’s your bold prediction for 2020? Is there a segment or sector of the market? Or sectors that you think investors really should be focusing on besides what we just talked about, which was renewable energy?
David Fessler: Yeah. I think medical technology is going to be a big area in 2020, and let’s not rule out some additional movement in the whole software as a service sector. There are several private equity companies that I’m invested in that are in the software sector, and some of their products are just absolutely amazing. And you think, “Wow, this is… Why didn’t I think of this?” So I think there’s going to be some exciting movement in the technology initial public offering (IPO) market next year. That’s another area that I’m obviously interested in too.
Matthew Carr: Yeah. You mentioned that you expect this big IPO market to take off.
David Fessler: That’s one area that could be as robust as 2019, and that year was a pretty good market for IPOs.
Matthew Carr: And you don’t think people are going to be scared off by WeWork and those kind of things?
David Fessler: Well, no. With IPOs, it’s like any other company – make sure you do your homework and that they’ve got a good business thesis and that it’s being run by credible individuals. And, I mean, that’s unfortunate for those WeWork investors, and there are billions of dollars at stake there. But yeah, I think that if you do your homework, there are going to be some really good opportunities in the IPO market next year.
Matthew Carr: Yeah. And I’m with you. I think software as a service has some big moves next year. I’m going to actually take a bit of a different tact here and talk about enterprise resource management. I think there is an opportunity for cannabis companies, which had a terrible last half of 2019, but I think as we look to 2020, one of the things that I’m hearing is that they need to cut costs, they need to become more efficient and they need to become more profitable. One of the best ways to do that is start looking at implementing some sort of ERM or ERP platform and bring in all of those costs. I think that’s going to be the big focus next year. It’s going to be on that profitability, not on growth or expansion. I think everything pretty much grinds to a halt.
And then you and I have both been big proponents of the 5G move. 2020, I believe, is actually the year where all of that will start to take off – where all those rollouts will begin and all the disappointment that we saw from earnings from companies in 2019 will be replaced by actual results because everybody was expecting too quick of a move in 2019.
David Fessler: I think part of that was due to the media. They were hyping up 5G and still do, but they really don’t understand what it takes to roll out a nationwide 5G network. It happens slowly over time. Next year you’re going to see Apple with a 5G phone. And so there’s a big upside for it in that market, because it has been criticized lately. It’s saying, “Well, we’re not really selling as many iPhones as we used to.” And well, guess what? I think a lot of people are holding back because it’s like, “Okay, I need a new phone, but I’m not going to buy the 11 now. I’m going to wait for the 5G version to come out.” So I think its upside for phone sales is going to be huge.
Matthew Carr: Yeah, I think Apple was very smart to actually kind of wait because we’re all part of this upgrade cycle. We’re all going to have to buy new 5G phones. I know plenty of people who have 5G phones already, but I’m an Apple fan boy… I’ll wait for its new 5G phone.
David Fessler: Yeah, me too.
Matthew Carr: All right. Well, this is Matthew Carr, Chief Trends Strategist for The Oxford Club, and I’m joined by my colleague and friend David Fessler, Energy and Infrastructure Strategist for The Oxford Club. Hope you guys enjoyed what we had to talk about today, and we look forward to talking to you in the future.
David Fessler: Okay, Matt. Thanks. Good talking with you.
Matthew Carr: Same with you, Dave.