Trends to Watch for in 2018

Delwin Graham - Jan 12, 2018
January newsletters are full of predictions. Recognizing that predictions are dangerous, I will refer to the following “trends” for 2018, as well as their inevitable obstacles. 

January newsletters are full of predictions. Recognizing that predictions are dangerous, I will refer to the following “trends” for 2018, as well as their inevitable obstacles. 

 

1. We are on an economic roll.

 

The world economy enters 2018 with strong and broad growth momentum.  Taking the OECD (Organisation for Economic Co-operation and Development) as a representative group of “developed” countries, seventy five percent of its members posted accelerating GDP growth in Q3/2017, and no OECD country is experiencing a recession.  (Cf., Canadian Equity Research, “Top Picks 2018,” Canaccord Genuity).  Strong economic growth should continue, particularly in the US, given that the tailwind of the largest tax cut in 30 years is about to kick in.  According to the Republicans, the tax cut is meant to encourage companies to bring back their overseas cash hoards and invest it in productive capital expenditure to create employment.  (Cf. Rana Foroohar, “Three Trends to Move Markets in 2018,” Financial Times). It is also likely that many companies will spend the bulk of their tax savings on mergers and acquisitions, share buybacks and dividend payments, just as they did last year. While pouring more money into the markets should continue to keep them buoyant, interest rate hikes should work to curb any over-exuberance.  We can expect corporate and market behaviour to be very different when costs are 5-7 percent rather than 3-5 percent.

  

2. It’s still about the data.

 

The US tech sector has been the main driver of global equites over the past year.  In particular, data has become the new oil – the most valuable commodity of the digital age – and its control has the potential to determine who will be the winners this year and in years ahead. (Cf. Foroohar, Financial Times).  While the business model of US technology is based on a minimum of regulation, governments seem to be taking a firmer regulatory hand to break up trusts and promote competition.  To this point, the European Union’s reaction to Google’s efforts to comply with its rulings around anti-competitive behaviour, restriction on Bitcoin trading, state-by-state antitrust cases involving the FAANGs (Facebook, Apple, Amazon, Netflix and Google) and any new revelations about Russia election meddling involving social media could damper the continued growth of the tech sector by effecting the free flow of capital.      

 

3. Still smokin’ – for now.

 

Cannabis stocks were big news in Canada for 2017. Over that year the Canaccord Genuity Cannabis Index was up over +277 percent, compared to the S&P/TSX Composite at +11 percent and the S&P/TSX Venture Composite up +41 percent.   However, the fundamentals may not support the rapid share price increases that we have witnessed. Because these share prices are often moving en masse, and without any specific company news, we might suspect that positive industry-wide fund flows are the main driver. (Canadian Equity Research, “Cannabis Monthly, January 2018,” Canaccord Genuity) This multiple-sector expansion could very well continue until the second half of 2018, when the roll-out of the legal adult use of marijuana exposes potential negative operational catalysts (rapid capacity expansion, execution of provincial retail distribution frameworks) that could slow or reverse the current trend. There could also be a social backlash against marijuana.  As recreational cannabis comes into common use, the national conversation on pot could very well switch from revenue-sharing among governments and producers to concern over the permanent impairment in concentration, memory, motor-skills, emotional control and other basic cognitive skills from overuse. (Cf. David Olive, “10 Business Trends to Watch for in 2018,” Toronto Star).  This could further increase regulation on the industry, increase costs, and restrict the free-flow of capital.

 

4. Blockchain Technology – not just Bitcoin.

 

One of 2017’s major trends was Bitcoin. However, the volatility of Bitcoin and other cryptocurrencies has overshadowed the usefulness of blockchain technology of which cryptocurrencies are an application.  By creating a digital record of transactions across hundreds or thousand of computers, blockchain greatly reduces the risk of hacking. It looks to be gaining widespread adoption in 2018 by the payment systems of banks, retailers and governments. Biometrics should also play a growing role in digital payments, as the use of facial recognition, fingerprints, voice ID and s0 called “retinal payments” (using a smartphone to scan one’s eyes) to verify transactions will reduce time at the checkout and guard against fraud and theft.  (Cf. Olive, Toronto Star).

 

 

Please contact me (delwin.graham@canaccord.com; (780) 408-1518) for further details and a few actionable investment ideas.

 

 

 

Canaccord Genuity Wealth Management in Canada is a division of Canaccord Genuity Corp. Member-IIROC/Canadian Investor Protection Fund.
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