InvestNow News 18th Oct – Pathfinder – Monthly Update – Sep 2019
We have become a far greater Economic Power than ever before, and we are using that power for WORLD PEACE!” – Donald Trump, President of the United States of America
MARKET COMMENTARY
Before moving onto market commentary, an energy sector news headline caught our attention.
The energy sector is notorious for booms and busts, but oil and gas stocks weighting (of4%)in the major US market index (S&P500) hasnot been this low since as far back as 1979. Energy giant Exxon Mobil dropped out of the S&P500’s top 10 stocks for the first time in nine decades. We think that this in part reflects increasing advances made by renewable-energy sources like wind, solar, and electric batteries. Renewable energy (which includes hydro) now accounts for about one third of global generation capacity. Further, ESG investors are much more likely to avoid fossil fuels as an industry in portfolios.
Major corporations are also getting involved. Amazon CEO Jeff Bezos announced his company would reach a goal of carbon neutrality by 2040, a decade ahead of the Paris Agreement goal. 80% of Amazon will be operating on renewable energy by as early as 2024, with initiatives such as electric delivery vehicles leading the charge.
Markets were higher in September, but October has been volatile so far. The primary driver of weakness has been concerns around slowing global economic growth.
The closely followed USISM manufacturing index slumped to 47.8 in September (a number below 50 signals a contraction in activity), the lowest since mid-2009. While we can take some heart from the fact that manufacturing now directly accounts for only 10% of measured USGDP, it is still a closely watched indicator when it comes to assessing the strength of the US economy.
Related data weakness has been a theme, with China industrial production figures coming in at 4%, the lowest level since 2002. Data readings & economic indicators have also been poor out of Germany (particularly given its reliance on trade), with the world’s 4th largest economy now technically in recession.
There are tangible signs that the trade-induced slowdown in the global economy is finally filtering through to the United States, which increases the pressure on negotiating a trade truce. Delegates from the US & China have struck a partial deal at recent talks, covering agricultural purchases, currency and some aspects of intellectual property protections, and averting a threatened tariff hike, but President Donald Trump said more needed to be negotiated. While the news will likely see a relief rally in the near term, we see the trade battle between the US and China as a long term issue.