A lot of financial commentary these days is centered around the idea of “stay the course and stay optimistic!” While I don’t necessarily disagree with that mantra, I do feel being malleable and cognizant of variables affecting client assets in uncertain times is among my core responsibilities. Examining the financial world around us, planning for financial volatility, and treating my clients’ assets and interests above my own is my highest calling. This approach is just the surface of the Fiduciary Standard.
In my continuing effort to bring real world information to both clients and the public, I often include data that may not be overly optimistic or rosy. Today’s chart is a good example of that data, and I present it for the edification of everyone, myself included. The chart is a breakdown of the major economic sectors and their respective share of the economy (as measured by GDP), employment, and the stock market (as measured by the S&P 500).
The information can be interpreted a number of ways, but it does illustrate a stark disconnect between each economic sector’s contributions to the economy and jobs, and the percentage share of each sector in the current stock market. I don’t want to pick on technology, but it does offer the biggest contrast in the chart. Technology is the biggest share of the stock market at 38%, but only contributes 6% to GDP and is 2% of all U.S. jobs. Does this signal storm clouds on the horizon? I’m not sure, but it certainly warrants some thought about where the investment markets are headed.
To be fair, I recently met with a young client/friend who is obviously very bullish on technology. He is a recent college graduate trying to get into the financial services industry. He’s very bright, articulate, and maybe has financial smarts beyond his years. He is the future of our economy, and will presumably spend his earnings over the next twenty years in all of the sectors an “old dog” like me just can’t fathom. Technological innovation is always growing at an exponential rate. Is this a paradigm shift? Are strong balance sheets, fiscal responsibility, and value-based companies a thing of the past?
I certainly don’t know, but Wall Street and CNBC veteran Art Cashin said recently, “I think it is this new breed of investors who have not had the experiences, sometimes the painful experiences, some of us have had that lead us to trade in a slightly more cautious way.”
It all sounds like a strong case for diversification, either way.