To Our Investors and Friends,
The market staged one of its greatest monthly gains in May, as the S&P 500 ended the month up 6.2%. The S&P 500 is now slightly higher year-to-date. Concerns over both the deficit and inflation helped push up the 10-Year Treasury 24 basis points to finish at 4.41%. The 2-Year Treasury Note advanced 26 bps to end at 3.89%. Oil increased by 4.4% to $61 a barrel, a depressed level indicating continued concerns of a recession at a time when OPEC is increasing production. Led by semiconductors, speculative story stocks, and a strong rebound in the Magnificent Seven, growth stocks rebounded much faster than value stocks in the month. The Russell 1000 Growth Index increased 8.9% and the Russell 2000 Growth Index advanced 6.4%. The Russell 2000 Value Index rose 4.2% and the Russell 1000 Value Index expanded 3.5%.
This year’s market turmoil is primarily tied to a dramatic change to tariff policy that is meant to favor companies that move production to the United States. Success in increasing US manufacturing will be tied to both a reduction in construction-related regulation (highlighted in April’s letter), and continued growth in the number of working adults. Most of the developed world is faced with a declining population of working adults as decades of shrinking families are met with the challenges of an aging population. The US has largely escaped this aging demographic challenge due to immigration. As can be seen in the chart below, the absolute number of immigrants to the United States has increased significantly in the last 50 years, and today immigrants comprise approximately 15% of the total population.
In their book, Empty Planet: the Shock of Global Population Decline, authors Darrell Bricker and John Ibbitson discuss the problems that come with a shrinking population. The impact is beginning to be felt everywhere, but is most notable in Japan, home to the world’s oldest population. As they explain, the primary benefit of a young population is “the young consume. Workers in their 20s, 30s, and 40s not only produce the wealth that powers an economy, they consume it. Japan’s economy has been stagnant going on three decades in part because its aging population consumes less and less, leading to less and less demand.”
Bricker and Ibbitson believe that the United States’ superpower is its history of accepting immigrants, which bring with them their hard work ethic and innovation. The authors further explain, that “immigrants, whether documented or undocumented, both mitigate the effects of an aging population and bolster the number of American babies. And history tells us that it doesn’t matter how they come, how much education, or what job qualifications they have, or what language they speak. Inevitably, they too become American.”
At Kingsland Investments, we believe that the United States will continue to generate the majority of the world’s best growth companies, many of which will be founded by immigrants. Like the authors of Empty Planet, we think that the US’ secret sauce has been and continues to be welcoming immigrants, and we look forward to better policies that make it even easier for the best and brightest of the world to immigrate here.
All the best to you,
Arthur K. Weise, CFA