The European Union started to make good on its pledge to cut emissions by 55% in 2030 from 1990 levels. The bloc’s 27 members reached a historic deal to set up the carbon border adjustment mechanism, an emissions levy on some imports. That’s meant to protect Europe’s carbon intensive industries that are forced to comply with the region’s increasingly tougher rules. Once it takes effect, there will be additional costs imposed on imported goods from countries without the EU’s restrictions on planet warming pollution.3
Investments in renewables is expected to keep growing. BloombergNEF projects that 2024 will bring an 8% growth in carbon-free energy investments. That should add up to more than 500 gigawatts of wind, solar, electricity, storage, nuclear, and geothermal power in 2024. According to the U.N. Intergovernmental Panel on Climate Change, at least 18 countries lowered emissions for more than a decade, according to its most recent review.
There’s hope in health care
The global pandemic galvanised the healthcare sector and sparked both medical and technological innovation.
However, medical science has taken major strides in other critical illnesses such as cancer, diabetes and cardiovascular diseases.
Drug makers have been working on providing therapies and treatments, launching a steady supply of blockbuster drugs. Healthy annual revenue generated from these drugs helps pharmaceutical companies to keep the pipeline for new treatments humming.
Digital health technology, such as electronic health records, telehealth platforms and mobile health apps, have the potential to attract greater investor interest.
The part investors may find particularly reassuring is that few sectors are as immune from global political or economic uncertainty as health care.
Predictable cash flow and revenue make healthcare companies a sensible choice for investors.
Prolonged Economic Adjustment
The U.S. has experienced its highest inflation in 40 years and the fastest pace of interest rate hikes since Paul Volcker’s crusade against rising prices in the 1970s. The percentage of economic forecasters expecting negative growth in 2024 is the highest it has been in the last 50 years at 44%, as the impact of the lagged monetary tightening is felt across the economy.2 Wall Street’s view is shared by Main Street as CEO sentiment hovers near historical lows. The same consensus believes the recession will lead to a fall in inflation, followed by a Fed pivot and a cut in rates that will propel a growth pickup and market rally in the second half of the year—the quintessential tale of two halves of a dip followed by a rip. We believe the economic adjustment will be more drawn out rather than a V-shaped recovery.
Structural pressures in the labor market, such as a declining workforce, falling immigration and employer incentives to retain workers could limit job market declines. It may take a long time for the unemployment rate to climb from 50-year lows.3 Wage growth at 4-5% suggests no sharp adjustment in consumption and may take sometime to fall to levels consistent with the Fed’s 2% inflation objective.4
The housing sector will also be slow in adjusting given there are few sellers, and the buyers are stepping back. Sixty percent of the housing stock is owned by the 55+ age group that is less likely to relocate or downsize.5 Since many homeowners obtained low interest rate mortgages, there is little incentive for them to sell and buy at a higher mortgage rate. At the same time, higher interest rates have led to a collapse in demand. It will take some time for the housing market price discovery and adjustment to occur.
Although inflation should ease from its recent highs, it could stay higher for longer. The Fed wants to avoid the monetary policy reversals of the 1970s when they tightened on three separate occasions to break the back of inflation, which could be more durable this time given tight labor markets, resource intensive energy decarbonization and less competition due to deglobalization.