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New Economy, Should We Invest in It?

By Ivan Indrapermana, CFA

'New economy' stocks are one of the main reasons behind Wall Street and main street divergence. They led stock market recovery during the Covid-19 crash. They bring the S&P500 index (not to mention Nasdaq) to a new high when the world is still suffering from the pandemic effect. FAANG is part of the new economy, and so with other 'tech' stocks, or 'fourth industrial revolution' stocks.

The term ‘new economy’ has been around for decades. Time magazine’s cover in May 1983 captured most of the points. It described the transition from heavy industry to a new technology-based economy. Peter Drucker in Post-Capitalist Society (1994) made an interesting point: in the new economy, knowledge is not just another resource alongside the traditional factors of production (labor, land, and capital). It is the only meaningful resource. There is no definitive definition for the new economy, but we believe most people agree, knowledge is one of the critical properties of new economy sectors.