Stock prices and the mean expected NGDP growth rate came roaring back last week, after an rare week of lost ground. There’s evidence that there was a bit of both net positive real and nominal shocks.
Evidence for a small positive real shock comes from commodities markets, though prices still more than 50% above those of the pre-pandemic period.
By this measure alone, there is the potential for more boosts to real growth. This requires the world to begin to settle down with regard to conflicts which are restricting supply, as supply-chains otherwise continue their post-pandemic adjustments. Unfortunately, given some escalation in violence in the Middle East, for example, the current trend doesn’t seem to be moving in a positive direction. The risk for a larger regional war may be growing. Markets obviously remain sanguine overall, despite seemingly growing risks to short-run and perhaps even long-run prosperity. But, who am I to argue with markets?
Hence, despite NGDP and NGDI still being above pre-pandemic trends, inflation expectations are anchored near the Fed’s target, with very plausible scenarios for current inflation to continue to fall. Also, stock market volatility is relatively low. These are reasons for continued optimism, even as there are increasingly compelling reasons to keep a close eye on world events.
Now, I’d like to address some questions I’ve been getting about investment recommendations. I’ve received some emails recently with questions about which sectors and specific stocks might be best to invest in currently. I haven’t been an advisor in many years, so this doesn’t constitute investment advice. Such advice should be tailored to each individual by a current professional. That said, I can share an observation I haven’t shared in a while, which is that tech stocks broadly way out-perform the S&P 500.
Also, the tech ETF VGT, from Vanguard, has out-performed the Nasdaq composite in recent years. Below, VGT is in dark blue at the top, with the Nasdaq composite in light blue and the S&P 500 in yellow.
I’m not recommending VGT, but simply pointing to past performance, which obviously may not predict future results.
I used to be a value investor, but that approach yielded diminishing returns as tech became dominant. Now, I’m just tech-heavy with the bulk of my portfolio. AI-related stocks, which include many of the largest tech companies, have mostly done very well, especially since the launch of ChatGPT-3.5.
There is also something to be said for investing in smaller companies in emerging technologies, such as genetic engineering, stem cells, AI, green energy, blockchain, space transport and space-based tech, etc., but these are typically extremely risky investments in which I would expect very few companies within each industry to survive for long. The imporant focus here is usually on diversifying risk.
Unfortunately, I have no magic investment strategies, unless you consider high rates of historic compound growth magical, in which case there are many well-diversified strategies to be excited about. If you can’t beat markets, join them. Even with all of the growing chaos and uncertainty in the world, we are fortunate that there are seemingly so many good investment opportunities that don’t necessarily require much analysis.
Note: This post, as is the case with all my posts, should not be construed as offering investment advice. Such advice should be tailored to the individual investor by qualified professionals who, ideally, are fiduciaries.
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