The future of tech innovation—what you need to know
We provide top insights from the J.P. Morgan Tech Exchange, which brought together influential CEOs and entrepreneurs from around the globe.
Our Top Market Takeaways for June 11, 2021.
Markets in a minute
The I word
If we had a time machine, we would take it to June 1992, when core consumer prices rose at a 3.8% year-on-year pace and 10-year Treasury bonds yielded ~7.25%. We would gather the bond traders around and tell them, in hushed, mysterious tones, that nearly 30 years later, core inflation would be running at the exact same pace, but this time, the 10-year Treasury yield was 1.43%. They wouldn’t believe us. In fact, they would probably laugh us out of the building. How on earth could inflation be running that hot1 while bond yields are that low?!
Let’s count the reasons:
1. Markets are forward looking. The inflation data covers a period of time that has already happened. Bond markets are probably telling you that this spike in inflation will subside through the rest of the year.
2. The devil is in the details. The automotive sector is facing massive demand for both new and used cars, and supply issues stemming from semiconductors. Auto prices contributed almost half of the month-on-month rise in consumer prices. If there is a sector of the economy that’s dealing with transitory factors that are boosting prices, it’s autos. Indeed, median inflation, which allows us to look at the actual underlying trend without noise from outliers like autos, still looks very tame.
3. Shelter inflation (think: how much you pay in rent, how much you think you can rent the place you own for, and the cost of lodging away from home), which was in outright deceleration, has stabilized and is now showing very tame increases. This is a healthy signal for the recovery, yet consistent with the amount of slack still in the economy.
4. The market is dealing with an incredible amount of demand from Federal Reserve purchases—more demand ramps up the prices for Treasuries, which pushes down yields.
5. The market is realizing that there is really no reason for the Fed to rush into talking about [talking about] starting to remove policy support given that the economy is still around 10 million workers below the pre-pandemic trend. They have a long way to go to reach their goal of maximum employment.
The inflation debate will continue through the summer, but markets seem to have seen enough. The tech heavy NASDAQ 100 Index, which tends to do better when bond yields and inflation are low, rallied by over +1% yesterday following the latest inflation print. In fact, the technology sector is the second-best performing sector in the S&P 500 since that first eye-popping April inflation print back in May. Meanwhile, banks, which tend to do well in a rising rate and inflation environment, lost -1.8% yesterday, and financials are lagging the market since the April inflation data was released. And to add to it all, the S&P 500 managed to close at a new all-time high yesterday.
As we suggested in our Mid-Year Outlook, we believe inflation will be higher during this cycle than the last (which suggests that you should have appropriate exposure to more cyclical and value sectors of the stock market), but it probably won’t be enough to derail markets or the economy either by itself, or because it forces the Fed to prematurely tighten policy. We think that tech ought to do just fine, too. Speaking of tech.…
Insights from the JPM Tech Exchange
Last week, the 6th annual J.P. Morgan Tech Exchange, alongside the Global China Summit, brought together a highly impactful group of CEOs and entrepreneurs, as well as several of the world’s most influential investors. The theme was “Accelerating Transformation” and provided a valuable opportunity to reflect on the momentous developments around the world during the pandemic, and explore the path ahead. The speakers included Ray Dalio (Founder of Bridgewater Associates), Eric Schmidt (former CEO of Google and Co-founder of Schmidt Futures), and our very own Jamie Dimon (Chairman & CEO of JPMorgan Chase), just to name-drop a few.
Here are 5 big takeaways from the event:
1. When it comes to tech talk between the U.S. and China, competition could actually be the best way to avoid conflict.
With ground rules and proper management (by both sides), competition can kickstart the engine of innovation and drive excellence, creativity and economic growth. One speaker went so far as to say the “rivalry-partnership model is actually better and safer for America than decoupling [which carries the] danger of miscalculation.” Sound familiar? We’ve written a lot about this unfolding dynamic.
2. Digitalization is here and now, and the evolution of players is shaking up the game.
Policy subsidies are falling and competition is rising. Last year’s new entrant has become this year’s incumbent. The fast pace of change means there’s plenty of competition, and even giants like Alibaba and Tencent still have to constantly innovate and make big bets about the future. Yes, regulation will be a near-term headwind, but tech is by no means done growing. Just consider the digitalization of the services sector—it’s over half of the Chinese economy but is hardly as efficient as the manufacturing sector. Expect it to be a big driver of productivity growth in the years ahead.
3. Want a few examples? There are plenty—from online education to real estate to EVs.
If used right, education technologies can narrow income and opportunity gaps by helping train or retrain workforces. In Hong Kong, real estate is being used for data centers and logistics. In South East Asia, entrepreneurs are taking successful U.S. and Chinese business models and adapting them to local conditions. And when it comes to EVs, penetration is expected to top 20% in China by 2025, vs. only 5% in 2020.
4. Healthcare is now the fastest growing segment of consumption in China, with emerging trends from healthcare tech, innovations in medical treatments, and new services and equipment.
Vaccine mRNA technology is on its way to broader usage for other diseases like cancer. Tele-medicine is also on the rise—testing technologies have been improved, and patients aren’t keen to return to over-crowded hospitals. At the same time, the industry is exploring new business models and public health insurance coverage is deepening.
5. Blockchain and crypto were a very hot topic of discussion. Obviously.
The debate around blockchain and crypto-assets is set to continue, with varying assessments of their value and utility. One speaker noted that as major technology platforms dominate online networks, blockchain is viewed as a way for users to reclaim their data rights—its “foundational trust structure” can build trust through a network effect involving verification by millions of computers. And the uses of blockchain technology are only on the rise—from payments to videogames to NFTs.
At the same time, others called out a number of challenges on crypto, namely the lack of backing of assets, uncertainty around government regulations and scrutiny around the role of cryptocurrencies in ransomware attacks.
All market and economic data as of June 2021 and sourced from Bloomberg and FactSet unless otherwise stated.
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