By: Bill Studebaker, CIO at ROBO Global
With July taking the title of the hottest month globally on record, it feels like everyone is ready to hit the beach. Yet, some are always afraid of sharks, and there remains an underlying apprehension about what could be lurking beneath the water as Wall Street strategists continue to voice concerns about every possible risk. While global investors have gotten accustomed to scanning the surface for threatening fins, it has been remarkable to see just how pleasant the waters have been for financial markets lately. Why does this always surprise investors?
Perhaps the biggest concern for the market is how to tame inflation without hampering global growth. Again, a special thanks to almost every economist for advising us this was an exceptionally unlikely possibility. Amidst a slew of macro data – particularly in the US – it seems like we continue to see a soft landing unfold. Well, we hate to say it, but we have opined for months that if there is any way out of the structural inflation we have seen, it will be because automation has come to the rescue to improve productivity and generate many new growth opportunities.
For the month of July, all three of the ROBO Global Indexes generated positive returns. Gains were led by the ROBO Global Artificial Intelligence Index (ticker: TNHQ) +5.60% while ROBO Global Healthcare Technology and Innovation Index (ticker: HTEC) rallied +1.75% and the ROBO Global Robotics and Automation Index (ticker: ROBO) tacked on +1.50% return.
Despite driving market sentiment seemingly less than in months past, the FOMC meeting on July 26th saw Powell continue to thread the needle. While he made some dovish concessions that alluded to “good is good”, the idea that inflation may not return to 2% until 2025 certainly solidifies the “higher for longer” outlook. Meanwhile, the ECB also hiked by 25bps though the near-term economic forecast for the region remains more uncertain.
With almost half of the S&P (by market cap) having reported, there is unequivocally no shortage of read-throughs. Megacap tech – Google (GOOGL), Microsoft (MSFT), and Meta (META) – all provided relatively strong indications that the boom in artificial intelligence will continue to propel fundamentals and provide support for the investment spending to come. Indeed, that means more demand for Nvidia (NVDA) chips as Samsung reconfirmed the rapid growth in demand for AI-related chips and even CPU chipmaker Intel (INTC) surged after showing that a PC recovery is underway. Nevertheless, with the Nasdaq having its best first half ever, it remains to be seen if investors take profits – as seen with Microsoft (MSFT) – or continue to chase rallies like Meta (META).
Regardless of which direction the market goes in the coming weeks, we see no better place for investors to be focused on than automation. Importantly, artificial intelligence is a platform technology that is poised to disrupt business models globally in the years to come. The ROBO Global Artificial Intelligence Index (THNQ) was designed to provide investors with exposure to the global value chain of best-of-breed AI infrastructure providers as well as the industries best enabling the use of AI. As we have said repeatedly over the last several years: during periods of weakness, investors should view potential pullbacks as an opportunity.
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