Here's why one market bull says betting on innovation is still a slam dunk
MARKETWATCH 7:21 AM ET 12/11/2018
Critical information for the U.S. trading day
Looking to blame something or someone for the roller coaster ride this year has turned into?
Thank a dull 2017 for this market's troubles, says Will Hobbs, head of investment strategy at Barclays Investment Solutions. Unlike what we've seen notable in the latter part of 2018, last year was notable for its lack of volatility and big moves, to the point where we moaned a lot about it.
"We had a calm 2017 and that lulled everyone into a false sense of security," he told MarketWatch in an interview on Monday. And so investors marched into 2018 with "no sentiment cushion to absorb the inevitable bump in the road ahead." And ka-boom, in a year where the headlines have helped push major indexes into the red.
But there's good news, as he says investors have much more padding headed into 2019, because expectations are so muted on everything from a trade truce, to Brexit, to outlooks on global growth. Upside surprises here we come? Maybe.
Hobbs is also providing our call of the day, which offers an alternative for investors sick to the teeth of tracking market ups and downs, and all matter of political headlines. So if you can stick to a three-to-five year plan, then one of his favorite themes -- the fourth industrial revolution -- might be worth a look.
He says investors need to ask and answer two questions before figuring out if this long-term theme is for them. "The first one is 'Do I think that humankind is going to invent new stuff and get better at inventing new stuff?' and 'Is the price for the ticket to that innovation reasonable or is it extortionate?'"
"The answer to both is yes, because productivity is much better set than people realize...as for the valuation question, things don't look that stretched to us, with stocks being a little expensive, but not sufficient to damage long-term returns," he says.
For Hobbs, the planet's most precious resource is humans and what they can create, with, for example, more Chinese students headed for higher education and innovation patent applications taking off. Of course, it's not so easy to pick those innovative stocks, but you can pick the companies and sectors that are likely to adapt quickly to new innovation, he says.
For example, Hobbs says banking and pharmaceutical companies will see massive cost benefits from innovation. Meanwhile, U.S. tech -- a sector that he thinks is a little too beaten up these days -- and industrials, on a multiyear view, will both benefit from new, innovative trends, such as robotics and artificial intelligence. It's not just U.S. tech. He says investors should look elsewhere for those new ideas.
Hobbs's call is just one the many that has passed through this column for 2018. Check out our roundup (http:// www.marketwatch.com/story/which-wall-street-forecasters-should-you-listen-to-now-heres-who-nailed-it-in-2018-and-who- bombed-2018-12-10)of the most notable forecasts from Wall Street gurus -- those that were spot on the money and those that spectacularly bombed. (http://www.marketwatch.com/story/which-wall-street-forecasters-should-you-listen-to-now- heres-who-nailed-it-in-2018-and-who-bombed-2018-12-10)
Read:Stock market on 'cliff's edge' as S&P 500 tests this crucial support level: chart watcher (http:// www.marketwatch.com/story/stocks-threaten-cliffs-edge-as-sp-500-dips-below-2616-chart-watcher-2018-12-10)
Gold is ticking higher, along with crude , while the dollar is down.
Check out the Market Snapshot column for the latest action.
Europe is marching higher, while it was a mixed session in Asia, where the Nikkei had another down day (http:// www.marketwatch.com/story/china-stocks-make-tentative-gains-as-japans-nikkei-falters-in-asia-2018-12-10). (http:// www.marketwatch.com/story/what-is-brexit-and-why-is-it-so-complicated-2018-10-17)
The chart
When retail investors get super gloomy about stocks, look out above, say some. Our chart of the day, from the Investor Movement Index (via The Wall Street Journal's Daily Shot (https://blogs.wsj.com/dailyshot/2018/12/11/the-daily-shot- factories-hotels-and-restaurants-posting-record-job-openings/)) shows just how negative Main Street was for November:
Granted, November was a heck of a month. Sidle on over to the AAII Sentiment Survey (https://www.aaii.com/ sentimentsurvey) and the first week of December looks a little split when it comes to bulls, bears and those who can't decide. Check out more so-called contrarian indexes here (http://www.wallstreetcourier.com/v/is-contrarian- indicators.htm#dumb-money).
Read:OECD economist says prepare for the worst when it comes to the global economy (https://www.fnlondon.com/ articles/an-audience-with-the-oecds-chief-economist-its-time-to-prepare-for-the-worst-20181211)
The buzz
The latest round of U.S.-China trade talks kicked off Monday with a call between Treasury Secretary Steven Mnuchin, U.S. Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He. Meanwhile, a bail hearing for a jailed Huawei executive has been delayed by a day (http://www.marketwatch.com/story/bail-hearing-for-huawei-exec-jailed-in- canada-will-move-into-second-day-2018-12-10). Some say her arrest has put a "bull's-eye" on Apple (https:// www.bbc.co.uk/news/technology-46516662#).
Speaking of, Apple's (AAPL) miserable performance since September could mean trouble for Warren Buffett's Berkshire Hathaway (BRKA) , (BRKA), says Barron's (https://www.barrons.com/articles/berkshire-hathaway-could-lose-money-if-apple- stock-doesnt-recover-1544469192?mod=hp_DAY_4). As Berkshire's biggest holding, the conglomerate has lost about $15 billion so far this quarter just on that holding.
Delta (DAL) is banning support animals (http://www.marketwatch.com/story/delta-bans-kittens-and-puppies-as-support- animals-on-all-flights-and-all-emotional-support-animals-on-longer-hauls-2018-12-10) on flights over 8 hours, and puppies and kittens are totally off limits. The airline says it has seen a spike in incidents involving service animals in the last two years.
Embattled U.K. Prime Minister Theresa May will meet with EU President Donald Tusk later (https://twitter.com/ PrebenEUspox/status/1072400912830865409) to talk Brexit after she delayed a potentially brutal parliament vote that had been skedded for Tuesday.
A small-business sentiment index and producer prices are headed our way this morning.
The quote
"My only concern is you, my only combat is for you -- our only battle is for France." -- That was French President Emmanuel Macron in a public address late Monday (https://www.theguardian.com/world/2018/dec/10/macron-pledges-to-raise- french-minimum-wage-gilet-jaunes-protests) as he attempted to quell civil unrest in his country that has been particularly bad in places like Paris. He offered tax cuts and minimum wage boost to the so-called "gilets jaunes" (yellow jackets), many of whom see him as a "president of the rich."
Godzilla, plus a superstar from 'Stranger Things'. I'm in.
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Good morning kk. Can't say that I agree on this one. Trump's strategy of tweeting endlessly has worked just fine so far. We'd know a lot less without it.
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