A BlackRock strategist has said the days of ultra-low interest rates, low inflation and outsized stock market returns are over. Nigel Bolton said investors can now expect higher inflation, higher rates and more volatile financial markets. He said the last 10 years have been unusually good for the markets and they are now returning to something closer to normal. Loading Loading something.
Since the 2008 financial crisis, ultra-low interest rates and central bank bond-buying programs have flooded financial markets with cash. This has pushed assets higher, even though inflation has been relatively low and steady.
But those days are over, according to Nigel Bolton, global head of equities at BlackRock, the world’s largest asset manager.
The price increase 2022 and the coronavirus pandemic have pushed the global economy into a new “regime,” Bolton told Insider, forcing central banks to sharply raise interest rates and companies to rethink global supply chains.
Investors can now look forward to a decade of higher inflation and lower yields, Bolton said. Many analysts call it a “regime change” in the financial markets.
The old days are over
The last decade and a half has been a great time to have money in the stock market.
Central banks around the world cut interest rates to record lows in the wake of the financial crisis and bought trillions of dollars in bonds, driving bond yields lower and stocks higher. Even factoring in the 2022 crash, the S&P 500 is up about 500% from its 2009 low.
Investors have also enjoyed decades of stable inflation, with prices in the US growing by an average of 2.2% annually in the 20 years until the pandemic hit in February 2020.
However, Bolton said times have changed. While inflation looks set to peak in the coming months, it is unlikely to return to previous levels, he said.
“The chances of us returning to the regime we had 10 years ago, of very low inflation, of the 2% rate, I think is very unlikely.” Bolton said.
He said China’s cheap labor was a key factor in keeping wages and prices down, but workers there are about to become scarce as population growth slows.
The global push to decarbonize economies is also likely to drive higher inflation, Bolton said, particularly by raising the price of metals such as copper, which are used heavily in renewable energy.
Many other investment firms, and even central bankers, also think a regime change is happening. Christine Lagarde, president of the European Central Bank, declared that the era of low inflation was over in July.
“There are forces that have been unleashed as a result of the pandemic as a result of this massive geopolitical shock that we’re facing now that are going to change the landscape,” he said.
The picture is darker
So what does it mean for investors? Crucially, stronger inflation will mean higher interest rates, Bolton said.
“I think returns across all asset classes are going to be lower,” Bolton said. He said investors should now focus much more on whether stocks are good value, rather than simply piling into the fastest-growing tech names.
The very low bond yields of yesteryear drove investors into speculative corners of the market, fueling phenomena like meme stocks and cryptocurrencies. Bolton said that trend has ended as interest rates and bond yields rise.
“The way I would think about it is that the last 10 years were unusual,” he said. “You had quantitative easing, you had capital effectively at no cost, almost, in many areas.”
He added: “I think we’re just going back to a more normal environment, where there’s a bit more inflation, interest rates are going to have to go up and down. So there’s going to be more volatility. that macro environment and that’s going to lead to more volatility in the stock market.”