To Our Investors and Friends,
The S&P 500 Index (S&P 500) expanded by about 0.3% in May as the fabulous seven – the top seven stocks by market capitalization in the S&P 500 – continued to power higher while most of the market declined. Oil dropped a whopping 11% to $68 a barrel as anticipated China demand did not materialize. The 10-year Treasury bond increased 20 basis points, ending at 3.6%, while the 2-Year Treasury moved up 36 basis points, finishing 80 basis points above the 10-year. All but a select group of technology companies declined in the month. This led the Russell 1000 Growth Index to appreciate 4.6%. The Russell 2000 Growth Index increased 0.0%, while the value indexes contracted. The Russell 2000 Value index fell 2.0% and the Russell 1000 Value index retreated 3.9%.
After a horrific 2022, technology businesses are again powering the market ahead, this year driven by the excitement surrounding Artificial Intelligence (AI). AI could be the most customer-centric technology to ever come of age and follows a long list of technologies that have driven a rise in individualism across the globe, and specifically across generations.
Individualism is defined by author Jean Twenge as “an emphasis on individual rights that began to replace the old system of social rules surrounding race, gender, and sexual orientation.” It is enabled by technologies such as the internet, the cell phone, social media and now AI, and plays a critical role in shaping the future of our country and our economy. In her book Generations: The Real Difference between Gen Z, Millennials, Gen X, Boomers, and Silents – and What they Mean for America’s Future, Twenge reviewed surveys involving over 40 million Americans across several decades to try to better understand what leads to the significant differences across generations. She theorizes that while previous generations were defined by influential events such as wars, pandemics and depressions, since the widespread adoption of television in the 1950s, subsequent generations are defined by the new technology of the age. Devices such as the personal computer and internet (Gen X), cell phones (Millennials) and social media (Gen Z) have led to a significant rise in individualism. This will only be magnified with the promise of AI, most likely the newest technology that will define the latest generation – the unnamed generation that began in 2015.
Individualism is creating considerable cultural change that likely will not revert to a way of life that older generations remember and value. The most significant impact could be a new slow-life mentality in which younger people take their time becoming independent adults, delay having children and even change their approach to work (the rise of work from home, mental health days and more generous parental leave) and how others are treated in society (so-called cancel culture). Central to this is protecting individualism above all else. Twenge states, "The emphasis on safety is rooted in the slow life strategy which favors safety as the ultimate virtue.” She further explains, "Protection is more important than open discussion. Millennials, on the slower side of the slow life strategy, favor protection while Gen X's earlier path to adolescence favors toughness, and thus more immunity to the idea that words are violence. Individualism, which favors the rights of those that have historically been discriminated against, intertwines with the slow life strategy of protection.”
Twenge predicts that even more change is ahead. Gen Z is materially more pessimistic than earlier generations, especially after the COVID pandemic. She believes Gen Z has an “unapologetic desire to change a system they believe isn’t working anymore,” and is the most politically active generation since the Boomers in the late 60s and 70s. If AI is the technology shaping the next generation, the question for both society and investors becomes whether and how AI enhances or limits our freedoms in the decades ahead.
At Kingsland Investments, we seek businesses that use new technologies such as AI to create better solutions than are currently available in the marketplace. We believe that consumer centricity and entrepreneurship remain important themes that likely shape the economy of the future. We continue to diligently focus on finding businesses that we believe will enable the economy of the next generation.
All the best to you,
Arthur K. Weise, CFA
The views expressed are those of Kingsland Investments as of June 1, 2023, and are not intended as investment advice or recommendation. For informational purposes only. Investments are subject to market risk, including the loss of principal. Past performance does not guarantee future results. The stocks mentioned are for illustrative purposes only and are not a recommendation to buy or sell. There can be no assurances that any of the trends described herein will continue or will not reverse. Past events and trends do not imply, predict or guarantee, and are not necessarily indicative of future events or results. Investors cannot invest directly in an index.