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The 2010s decade was an economic dud. That convinced many investors that slow growth and low inflation were permanent features of the world’s topology. Poor demographics and productivity would keep growth sluggish, while globalization and digitization would keep inflation muted. Restrained government spending after 2008’s crisis further promoted this view. And capital spending in the private sector was sparse. The investment that did take place mainly went into productivity-dragging distractions – digital games, social media, and other consumer internet technology. None of this made a meaningful contribution to overall economic growth.
The pandemic changed everything by paving the way for bold fiscal stimulus around the world – a clear breakaway from austerity and deficit shaming. Both are now dead, and the deflationary impulses that defined the last decade are no longer in place.
Looking ahead, a revival in demand is taking hold simply because the world has underinvested in the productive capacity of the economy for years (what our investment team calls the “revenge of the real economy”). Structural changes in advanced economies mean more resources will go to things that are increasingly viewed as “state responsibilities”: decarbonizing the energy system; building resilience into domestic supply chains; and managing the digital transition of our lives and livelihoods. Even turning to the grand canvas of geopolitics, we see that heightened tensions are leading policymakers to spend more on “industrial policy” (a term revived from the post-World War II period when countries sought ways to rebuild their economies and promote domestic development).
A global race to reindustrialize – driven by decarbonization, reglobalization, and remilitarization – is now firmly underway. Public and private money is flooding into capital projects of all kinds, creating an investment boom in all corners of the world. Everywhere you look companies, facing higher interest rates and labour costs, are spending money to lift productivity – in ways that extend far beyond betting the farm on AI and ChatGPT.
This is not just a Western trend. Across the developing world, a capex boom is unfolding in energy and transport projects as the world fillets itself into continental and mega-regional hubs. Countries across Asia, Latin America, Africa, and the Middle East are embracing new infrastructure spending plans, while disposable incomes rise and populations grow. All of this is reversing the secular stagnation trend of the last decade and powering an environment of structurally higher growth and inflation.
Many investors are still using the 2010s playbook, expecting a return to an era of slow growth and subdued inflation. This is a classic behavioural case of anchoring to past conditions – and extrapolating them well into the future. Yet the world has already moved on. Over time, asset classes that do well will reflect the underlying macroeconomic dynamics. Investors are now at a crossroads.
With America’s technology giants continuing to dazzle, one path is to assume that the investment leadership of the last decade continues. But history provides no support for that view. Winners of the last decade rarely go on to dominate the next one simply because everyone is already all-in on the trade – high valuations and high expectations naturally lead to lower returns.
Investors should instead stay oriented toward an environment of “higher for longer” interest rates and resilient growth amid reindustrialization and higher fiscal spending. In the same way that the consensus consistently overestimated growth in the 2010s, the opposite will now occur: Investors will, as they have so far this decade, consistently underestimate it.
Positive economic surprises will lead to flows into equities (from cash and bonds) and rotation within equities (from defensive and tech sectors to cyclical and international stock markets). Many investment classes that struggled with chronically weak demand and dismal pricing power in the era of low inflation, are primed for a long period of outperformance.
A new bull market is unfolding – just not the one most investors expect.
Over the coming weeks, Forstrong’s investment team, a collective with several centuries of combined global experience, will share our best ideas about the world’s most important Super Trends – those enduring themes that will have the largest impact on capital markets. Our hope is that our Super Trends 2024 report will help investors make sense of the unfolding macro landscape and unravel some of the market’s mysteries.
Tyler Mordy, CFA, is CEO and CIO of Forstrong Global Asset Management Inc., engaged in top-down strategy, investment policy, and securities selection. This article first appeared in Forstrong’s Super Trends 2024. Used with permission. You can reach Tyler by phone at Forstrong Global, toll-free 1-888-419-6715, or by email at tmordy@forstrong.com. Follow Tyler on X at @TylerMordy and @ForstrongGlobal.
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Content © 2024 by Forstrong Global. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited. Used with permission.
The foregoing is for general information purposes only and is the opinion of the writer. The author and clients of Forstrong Global Asset Management may have positions in securities mentioned. Performance statistics are calculated from documented actual investment strategies as set by Forstrong’s Investment Committee and applied to its portfolios mandates, and are intended to provide an approximation of composite results for separately managed accounts. Actual performance of individual separate accounts may vary with average gross “composite” performance statistics presented here due to client-specific portfolio differences with respect to size, inflow/outflow history, and inception dates, as well as intra-day market volatilities versus daily closing prices. Performance numbers are net of total ETF expense ratios and custody fees, but before withholding taxes, transaction costs and other investment management and advisor fees. Commissions and management fees may be associated with exchange-traded funds. Please read the prospectus before investing. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.
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