Super Trends: Two Sectors Are Hot, and Another Is Not

All year long, Bank of America economists have been clear on one point: The U.S. economy is headed for a recession.

It’s been a drumbeat of despair. Relentless. Downbeat.

But reality refused to line up with BofA’s dire forecast.

Corporate earnings have been more resilient than expected. Economic growth has continued. Stocks rebounded and raced to record highs.

Bank of America’s economists refused to acknowledge this rosier reality. Indeed, back in June, the investment bank’s experts claimed that something called a “growth recession” was in the offing.

This week, BofA prognosticators finally junked their recession forecast — the first of the Wall Street heavy hitters to do so.

And they did this just as rating agency Fitch downgraded the United States’ long-term credit rating.

And that, in a nutshell, is the challenge of “event” investing — making predictions (“calls” in Wall Street parlance) based on the latest headlines.

There’s another way — a potentially better way, one based on themes or trends.

Trends that have muscle… have staying power… and ripple their way through the entire financial system.

They can persist for long stretches — even years. They can funnel you into the right stocks. And keep you away from the losers.

And that’s why they can make you rich.

Big trends — and the stocks to play them — are the bailiwick of our friends at LikeFolio. Founders Andy and Landon Swan and their All-Star research team have a long record of “seeing” these trends before everyone else catches on — and spotlighting the companies (and stocks) that will be the biggest beneficiaries.

So here in today’s edition of TradeSmith Daily, I’m going to share three themes the LikeFolio team has ID’d as power plays for the rest of 2023 — and beyond. Two are hot.

And one is not.

Those three trends are:

• Artificial intelligence (AI)
• Travel
• Home Improvement

Let’s start with the first trend — AI.

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The AI Party Keeps Going

Bill Gates was ahead of his time in 1995 when he said the internet was a “tidal wave” that would “change the rules.” People were understandably skeptical at first. Then they turned euphoric.

But when that whipsawing ended, and the ensuing “shakeout” separated the prospects from the suspects, the internet really did change the rules — and the world.

This innovation changed commerce, investing, entertainment, relationships, and much more.

Fast forward to 2023, and the same Bill Gates has weighed in once again — this time with a seven-page manifesto detailing how AI is that next “tidal wave” that will change the rules:

“The development of AI is as fundamental as the creation of the microprocessor, the personal computer, the Internet, and the mobile phone,” Gates wrote. “It will change the way people work, learn, travel, get health care, and communicate with each other. Entire industries will reorient around it. Businesses will distinguish themselves by how well they use it.”

I grant you this: The first half of 2023 has been loaded with AI “events.” From the first AI-assisted hip surgery in South Carolina to Microsoft Corp. (MSFT)performing a full “AI makeover” on its everybody-uses-them software packages (Excel, Word, etc.), to Elon Musk forming the secretive xAI company. And the thing is…

All the social media chatter data from LikeFolio shows that AI isn’t just an “event.” It’s truly a theme — with real muscle.

Mentions of AI are up 493% year-over-year.

As these technologies get more refined, the “events” will keep coming.

But those “events” will be driven by breakthroughs. And those breakthroughs will add strength to the trend.

It’s the kind of trend that comes along once every generation or so — a true wealth creator you don’t want to miss.

Now, let’s jump to our second trend — travel.

Travel Is Still Booming

With inflation keeping prices elevated and credit card debt racing toward $1 trillion, it was fair to wonder how hard the travel industry could be hit.

After all, traveling is seen as a luxury — a “nice-to-have” (versus “need-to-have”) break from our workday lives.

Meaning cruises, vacation flights, and other travel packages can be one of the first things cut from our spending plans during tight-budget stretches.

But the travel industry rocketed out of the gate in 2023.

Summer vacation spending is forecast to hit an all-time high of $214.1 billion this year.

People are packing more fun into smaller windows.

Shorter trips — experts have dubbed them “micro-cations” — are on the rise. (Some travelers are dropping an average of $622 for single-night stayovers.)

And even within the booming travel industry right now, Andy Swan sees new trends emerging that will separate winners from wannabes.

While “generic” hoteliers will struggle in an era when travelers are looking to pack more fun into shorter stays, their inventive rivals will thrive.

And some of the coolest stayover innovations are already arriving…

• The “Smart Hotel”

These use the Internet of Things (IoT) in a way that combines efficiency, fun, and luxury in one package. You’ll be able to streamline check-ins, find food and entertainment, keep your room safe and comfortable, store your valuables, and get transportation — simply and quickly.

• The Sustainable Stay

Hotels are being built using eco-friendly materials, with energy saving, waste management, and low-environmental impact as key design considerations.

• Robot Staffs

More and more hotels are using robots to help automate check-in and check-out, carry luggage and act as concierges, or deliver room service.

• Virtual and/or Augmented Reality

These technologies are helping make entertainment, gaming, and new tech-driven attractions become standard fare among hotel offerings. The “try-before-you-buy” potential can offer virtual tours that will act as magnets for new customers.

• The Birth of “Super Brand” Experiences

In that bid to leapfrog their “generic” rivals, hotels are differentiating themselves by adding unique designs, layouts, and cool new “experiential” features to their properties. The novelty factor is no longer faddish — it’s “table stakes” for the top dogs.

You see, travel industry players have adapted to the new realities — transforming what could have been a transitive “event” that lasted for months into a trend that can persist for years.

We’re seeing growth in the travel industry, and there’s more to come.

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Home Improvement Not a Priority

The home improvement sector has two negative “whammies” weighing it down.

The first is the investable trend I mentioned above — travel.

Stuck indoors during the onset of COVID-19, folks had the time to really look around their homes and start to think.

“I really need new kitchen cabinets.”

“I really need a new rug for the TV room.”

“I really need to do some landscaping.”

But as people leave their homes to travel, their cash rides along.

The other “whammy” affecting the home improvement market is mortgages.

When you have to pay 7% interest on a 30-year mortgage, folks with a locked-in mortgage rate lower than 3% aren’t incentivized to sell their house and pay more than double the interest rate they were paying before.

If people aren’t selling their homes, that also means they aren’t visiting home improvement stores to buy new washers and dryers, refrigerators, paint to spruce up the outside of the home for more curb appeal, or anything else that will help sell their home faster.

Also add into the mix student loan payments resuming and persistent inflation, and you have a troubling brew of factors weighing down people pulling out their wallets for home improvement products and services.

Our friends at LikeFolio found not only a 67% decline in “Home Renovation” mentions quarter-over-quarter… but a 27% decline year-over-year:

Two stocks that will be most affected by this trend are Home Depot Inc. (HD)and Lowe’s Co. Inc. (LOW), and Andy Swan has everything you need to know about both companies right here.

Bottom line: AI is a sector that we are excited about and expect to keep making news headlines for 2023. For the travel industry, folks still aren’t willing to pull back their spending, and demand keeps climbing. For the home improvement sector, it’s not at the front-and-center spot in consumers’ minds. Plus, no one wants to sell their home and their interest rate payment of just 3% along with it.

We’ll be back in the next few days to show you how to cash in on one of these investable themes.

Enjoy your Thursday,

Keith Kaplan
CEO, TradeSmith

P.S. Much like you’ve seen with how the data from LikeFolio can be used to give you an investing edge, we also had to make sure you saw something else.

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