With the elections behind us, investors are asking how shifting winds in the current political environment will impact companies that make up our public financial markets. We believe the more important question to ask is what investing themes are least likely to be displaced by regulatory rulemaking or policy changes. We see four that will outlast politics and continue to expand well into the new decade.
The Growth of E-commerce
E-commerce has been increasing steadily for several decades in the U.S., representing 16% of retail sales in 2019. Before COVID, online sales were projected to grow further, but the quarantine drove e- commerce into hyper-drive with online sales projected to end 2020 at 27% of the total. Nevertheless, these growth rates were not enough to offset the decline in retail store sales overall. Those retailers who already had a strong online presence boosted investment to secure and grow their market share further. Those who had less presence recognized their weakness and moved to address the online sales channel. This retail shift is only still just beginning.
The Growth of Electronic Payments
We are an increasingly cashless society. In a 2018 survey, Pew Research Center found that 29% of U.S. adults use no cash during a typical week, up from 24% in 2015. The growth, expansion, and application of technology in financial services more broadly have only hastened this trend. Digital payment options offer a convenience factor that cash could never provide in the best of times. These options became necessity and served consumers well during quarantine as e-commerce blossomed.
The Growth of Cloud Computing
Cloud computing is an idea that seems new but is not. Using a service that allows you to use and see information that is not saved locally has been expanding for several decades. Quarantine only brought such advances onto center stage and accelerated demand for such offerings. Cloud computing, or distributed connectivity, allowed for streaming movies, playing games, conducting business, seeing a doctor, or doing any number of other virtual activities when we could not leave home. The accelerating acceptance of cloud computing will continue to open new possibilities around digital connections.
The Growth of Green Energy
Renewable energy is the fastest-growing energy source in the U.S., increasing 100% from 2000-2018. Renewables made up more than 17% of net U.S. electricity generation in 2018 with the bulk coming from hydropower and wind power. Green energy projects benefitted from government support in its infancy and is seeing increasing backing from private markets now that it is grown. Even still, government policy continues to push the industry forward.
For instance, Japan and South Korea recently announced plans to become 100% carbon neutral by 2050. In 2018, California passed a bill that requires 50% of its electricity to be powered by renewable resources by 2025, 60% by 2030, and 100% by 2045. All new homes built must have solar panels on the roof, and several cities have banned the use of natural gas in new residential construction. California has often been at the forefront of environmentally driven policy actions and other states are likely to follow.