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Global trust deficit

Economic and market data may be looking rosy, but the pandemic seems to have led to another type of recession – a trust recession – which may be undermining the overall function of our workplaces and economy.

Trust is a social lubricant and it is estimated that a 15 percent increase in a nation’s belief that “most people can be trusted” adds a full percentage point to economic growth each year. Unfortunately, remote working has taken its toll on society and trust in the workplace is on the decline across the globe. According to organizational experts, people need clear and easily discernible signals in order to trust colleagues, but the shift to a virtual working environment has made gathering this information much harder. This has inherently caused workers to interpret the lack of signals as untrustworthiness – a term social scientists coin the “fundamental attribution error.”1

Despite the pros of working virtually, the physical separation of colleagues has chipped away at workplace trust and this may have long-lasting ramifications. A trust spiral, once begun, is hard to reverse.

Joining the metaverse

“Metaverse” is the new favorite buzzword among tech companies. We can see its momentum in the recent announcement from Facebook, changing the company’s name to Meta, and other companies such as Microsoft and Nike seeking to incorporate shared virtual reality into their products.2,3,4 Acclaimed as the latest iteration of the internet that allows for new forms of connecting, the metaverse is still largely undefined. Many are concerned with user privacy in the metaverse and worry that this is just a new way for large tech companies to gather and monetize user data. At any rate, it will be interesting to see how it develops and what new benefits and risks it brings to society.

Upcoming sector classification changes in 2022

Bloomberg reported that the MSCI and the S&P Dow Jones Indices are consulting with the investment community on potential changes to the sector classifications for 2022. Among all the changes under discussion, the most impactful one would be to move some major credit card and payment companies from the Technology sector to the Financials sector. For example, Visa, Mastercard and PayPal, with a combined market cap over $1 trillion, would be reclassified as Financial stocks from Technology stocks. Another notable change would be to move renewable energy companies from Technology and Industrial sectors to the Energy sector.5

The proposed changes will not only meaningfully change the compositions of some sectors but may attract more investor attention and investments into them. Using Energy as an example, with currently less than three percent of the S&P 500 weighting and dominated by unpopular giant oil majors like Exxon Mobil and Chevron, the entire sector has been all but deserted by investors, especially ESG-minded new and young investors. However, with the potential sector classification changes, current and future renewable companies will be included in the sector, making the Energy sector relevant again.

Please see our detailed take on the subject – “Implication and Impact of Upcoming Sector Classification Changes in 2022”.

The rise of entrepreneurship and automation

U.S. workers continue to quit jobs in droves, posing challenges for employers who are trying to fill record levels of vacancies amidst a sharp rebound in economic activity. A record 4.4 million workers quit in September alone, while the April to September number stands at around 24 million.6 While workers are leaving in pursuit of a better standard of living and pay, surveys also show that pandemic induced burnout and fatigue have also added to this trend.7 There is also a notable spike in entrepreneurship and self-employment. Available data show that the number of unincorporated self-employed workers and entrepreneurs applying for federal tax-identification numbers have increased notably since the start of the pandemic.8

To combat labor shortages companies operating in nonautomotive industries have increased their purchases for robotic units. Total robotics sales for the first nine months of the year stands at around $1.48 billion.9 Amidst all these developments, employers are offering record wage increases and other attractive terms, but surveys continue to show that a significant portion of workers are considering retiring or quitting in the next 12-18 months. This points to further churn in the labor market and potentially higher wage inflation in 2022.10

IPO boom and bust

The IPO market has been robust this year with 43 companies each raising over $1 billion, but half of them are now trading at discount from their listing price. Among the companies that have faltered are Deliveroo, Oatley, Didi, and Paytm. When compared to the strong year for global equity markets, the performance of these companies is even more disappointing. Behind the disappointment are the valuation levels given to these companies by the companies that underwrite the offerings. Goldman Sachs, as the lead underwriter, has seen 9 of their 13 deals falter after their initial offerings.11

High yield credit volatility returns in November

November marked the second time this year that U.S. high yield bonds have posted a negative monthly return. Two widely used indices, the Bloomberg U.S. Corporate High Yield Index and the ICE BofA U.S. High Yield Index, returned -0.97 percent and -1.02 percent, respectively.12 Fears surrounding the Omicron variant of the COVID-19 virus, the possibility that the Federal Reserve would ramp down its bond buying quicker than expected in response to inflationary concerns, and seasonality effects all played a role in the selloff. Notably, outflows from the asset class led option-adjusted spreads to widen 50 basis points during the period, according to Bloomberg Indices. November’s spike in volatility quickly proved to be two-tailed, as month-to-date returns through December 7 show the ICE BofA Index up 1.30 percent and its Bloomberg counterpart up 1.23 percent.


  1. Jerry Useem, “The End of Trust”, The Atlantic, November 24, 2021
  2. Izabella Kaminska, “The metaverse is just the latest incarnation of Las Vegas,” Financial Times, November 26, 2021, https://www.ft.com/content/739235bc-c418-4895-a426-3bd245ec6a00
  3. Dina Bass and Emily Chang, “Microsoft’s Own Metaverse Is Coming and It Will Have PowerPoint,” Bloomberg, November 2, 2021, https://www.bloomberg.com/news/articles/2021-11-02/microsoft-s-own-metaverse-is-coming-and-it-will-have-powerpoint#:~:text=If%20you’re%20worried%20the,will%20have%20PowerPoint%20and%20Excel.&text=Customers%20will%20be%20able%20to,decks%2C%20in%20the%20virtual%20world.
  4. Jessica Golden, “Nike is quietly preparing for the metaverse,” CNBC.com, November 2, 2021, https://www.cnbc.com/2021/11/02/nike-is-quietly-preparing-for-the-metaverse-.html
  5. Steve Johnson, “Major sector ETFs face risk of large tech companies being reclassified,” Financial Times, November 15, 2021, https://www.ft.com/content/4d1e3f48-72b3-4ab3-87b9-23849535ee59
  6. Molly Smith, “A Record 4.4 Million Americans Quit Their Jobs in September,” Bloomberg, November 12, 2021, https://www.bloomberg.com/news/articles/2021-11-12/a-record-number-of-americans-quit-their-jobs-in-september?
  7. “From the Great Resignation to Lying Flat, Workers Are Opting Out,” Bloomberg Businessweek, November 7, 2021, https://www.bloomberg.com/news/features/2021-12-07/why-people-are-quitting-jobs-and-protesting-work-life-from-the-u-s-to-china?
  8. Josh Mitchell and Kathryn Dill, “Workers Quit Jobs in Droves to Become Their Own Bosses,” The Wall Street Journal, November 29, 2021, https://www.wsj.com/articles/workers-quit-jobs-in-droves-to-become-their-own-bosses-11638199199?
  9. Allison Prang, “Companies Order Record Number of Robots Amid Labor Shortage,” The Wall Street Journal, November 11, 2021, https://www.wsj.com/articles/companies-order-record-number-of-robots-amid-labor-shortage-11636669766
  10. Aaron De Smet, Bonnie Dowling, Marino Mugayar-Baldocchi, and Bill Schaninger, “‘Great Attrition’ or ‘Great Attraction’? The choice is yours,” McKinsey Quarterly, September 8, 2021, https://www.mckinsey.com/business-functions/people-and-organizational-performance/our-insights/great-attrition-or-great-attraction-the-choice-is-yours
  11. Hudson Lockett, Tabby Kinder, and Stephen Morris, “Half of this year’s big IPOs are trading below listing price,” Financial Times, November 28, 2021, https://www.ft.com/content/4c68c37b-57ae-47b1-98dd-f4a815b3182d
  12. Joe Rennison, “US junk bonds hit by sharpest sell-off in more than a year,” Financial Times, November 30, 2021, https://www.ft.com/content/12e80c41-6d00-43b6-bd52-31e062062f9b

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