Yahoo Finance 4 big stories for the next decade: Morning Brief
Monday, December 30, 2019
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What has worked might not keep working
As we near 2020, the Morning Brief has extensively chronicled the changing character of the stock market over the last few months.
A number of strategists have outlined the case for 2019’s rally marking the beginning of a new leg higher for the post-crisis bull market.
Look out over the next decade, however, and the picture grows a bit murkier.
Because while market history shows us that strong years for the stock market are often followed by strong years, decade-to-decade leadership tends to change, signaling caution to investors who want to place future bets based on what’s been working during the 2010s.
“Decades are all different, and the investment leadership in one decade has rarely been the leadership in the subsequent decade,” said the team at Richard Bernstein Advisors in a note to clients published this month. “We think the biggest investment theme over the next ten years could be the end of globalization.”
In the 2020s, the firm sees four themes that didn’t really work in the 2010s emerging as leading secular themes: inflation, emerging markets vs. venture capital, “tech becomes dreck,” and gold.
During the post-crisis bull market, betting against inflation (and, by extension, betting on central bank easing) has been one of the decade’s most profitable trades. The simplest way to express this view is to just buy U.S. stocks. The S&P 500 has tripled this decade.
When it comes to the two tech-related ideas, RBA notes that in the 2000s EM outperformed VC by about 14 percentage points per year; in the 2010s, VC outperformed EM by 20 percentage points.
“There is no scarcity of capital in Venture Capital and returns are already starting to wane, but investors’ appetite for VC remains hearty,” the firm writes.
“Meanwhile, investors have largely shunned EM. It will be interesting to see how these two asset classes perform over the next decade, but history suggests that EM will outperform VC.”
The rise of the FAANG stocks at several points during this decade’s bull market is one of the market’s defining features. But RBA notes that the tech sector has the largest exposure to the global economy of any S&P 500 sector. Recall that the firm’s biggest theme for the 2020s is the end of globalization.
“A contraction in global trade could make growth targets questionable for foreign exposed technology companies,” the firm writes, “but it is even harder to envision analysts’ lofty growth projections for the largest technology companies if antitrust regulation and disruptive capitalism continue over the next ten years.”
When it comes to gold, the firm says they’ve “never been ‘gold bugs,’ but it seems appropriate to hold gold if there is a secular contraction in globalization.” We’re also coming off a decade that saw gold prices almost double from 2010 through the fall of 2011 before the yellow metal spent six years going nowhere.
“There’s no guarantee that these themes will work,” RBA writes, “but we’re confident that the world will look quite different at the end of the next decade and today’s popular investment themes (like venture capital, technology, and deflationary investments) will ultimately prove inappropriate.”
These comments echo what we heard from Jeffrey Gundlach earlier this month, who said he expects the outperformance of the U.S. market to end during the next downturn. Japan outperformed in the 1980s, EM outperformed pre-crisis, and neither asset class has enjoyed the same relative success since.
“When the next recession comes, the United States [stock market] will get crushed and will not make it back to the highs that we’ve seen — that we’re kind of floating around right now — probably for the rest of my career,” Gundlach told Yahoo Finance’s Julia La Roche earlier this month. “Now my career doesn’t have 30 years to go, but it also doesn’t have one or two to go.”
This divergence between how strategists see the next year and the next decade brings to mind the famous Bill Gates quote about change and the future.
“We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten,” Gates wrote in his 1996 book “The Road Ahead.”
“Don't let yourself be lulled into inaction.”
By Myles Udland, reporter and co-anchor of The Final Round. Follow him @MylesUdland
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