SUMMARY
The current rolling recession - with industries contracting at different times – has left many investors waiting for economic and market downstrokes. We expect consolidation rather than downside and see potential opportunities in the likes of mid-cap growth and international equities.
- A “rolling recession” has left many investors waiting for something worse, a definitive and clear economic and market downstroke. We do not see that as likely, even as we expect that after 9 months of US equity market appreciation, a pause or consolidation appears inevitable.
- We do not see a rapid rise in unemployment on the horizon, but rather a cooling that takes labor market gains to a crawl by early 2024. When that scenario occurs, the Fed’s focus will shift, and rates will come down to support the economy
SPOTLIGHT | GREEN ENERGY REACHES A TIPPING POINT
We believe fossil fuel consumption will peak for economic reasons as green energy is rapidly becoming a cheaper, more abundant source of power.
The global market for clean energy technologies will increase threefold and be worth approximately $650 billion annually beginning in 2030 if countries implement their energy and climate pledges, according to the updated International Energy Agency (IEA) Net Zero Emissions by 2050 report.
Certain elements of the green energy space are now reaching sufficient maturity in today’s late-cycle expansion phase, and we believe there is an increasing likelihood that emerging clean tech companies will face their first non-COVID recession at a profitable stage.
We think this could trigger a round of consolidation much like we have seen with railroads and oil at the beginning of the 20th century – and again in the tech sector in the early 2000s. Creative destruction will accelerate the green energy transition. This will result in a stronger industry with greater power and capital.
Investors may consider focusing on firms that are cash flow positive with a capital structure not reliant on financing in the near term. They may want to invest in companies that will have the capital to spend on smaller entities with great intellectual property.
Private capital may find better buying opportunities today compared to even two years ago. Being selective is essential.
