The days of low inflation and big stock market gains are over: BlackRock

  • The days of ultra-low interest rates, low inflation and oversized stock returns are over, says a BlackRock strategist.
  • Nigel Bolton said investors can now expect higher inflation, higher rates and more volatile financial markets.
  • He said the past 10 years have been exceptionally good for the markets, and now they are returning to something closer to normal.

Since the 2008 financial crisis, ultra-low interest rates and central bank bond-buying programs have flooded financial markets with liquidity. This pushed assets higher, while inflation was relatively low and stable.

But those days are now over, according to Nigel Bolton, global co-head of equities at BlackRock, the world’s largest asset manager.

The 2022 price spike 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 chains global supplies.

Investors can now look forward to a decade of higher inflation and lower returns, Bolton said. Many analysts are calling this a “regime shift” in 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 up trillions of dollars in bonds, driving bond yields down and stocks soaring. Even accounting for the 2022 decline, the S&P 500 is up about 500% from its 2009 low.

Investors have also benefited from decades of stable inflation, with prices in the United States rising 2.2% per year on average in the 20 years leading up to the February 2020 pandemic.

Still, Bolton said times have changed. Although inflation appears to be peaking in the coming months, it is unlikely to return to previous levels, he said.

“The chances of us going back to the regime we had for the previous 10 years, of very low inflation, like 2%, I think is very unlikely.” said Bolton.

He said cheap labor from China was a key factor in keeping wages and prices low, but workers there are set to become scarcer as the population grows. slows down.

The global push to decarbonize economies is also likely to push inflation higher, Bolton said, including by driving up the price of metals like copper that are heavily used in renewable energy.

Many other investment firms, and even central bankers, also believe regime change is afoot. Christine Lagarde, president of the European Central Bank, said in July that the era of low inflation was over.

“There are forces that have been unleashed as a result of the pandemic as a result of this massive geopolitical shock that we are facing now that will be a game changer,” she said.

The outlook is darker

So what does this mean for investors? Basically, higher inflation will mean higher interest rates, Bolton said.

“I think returns for all asset classes will be frankly lower,” Bolton said. He said investors should now focus much more on whether stocks have good value, rather than just piling on the fastest growing tech names.

The ultra-low bond yields of yesteryear have pushed investors into the speculative corners of the market, fueling phenomena such as meme stocks and cryptocurrencies. Bolton said that trend was over as interest rates and bond yields rose.

“The way I would think about it is that the last 10 years have been unusual,” he said. “You had quantitative easing, you had effectively free capital, 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 they’re going to go down. So there’s going to be more volatility around this macro environment and this will lead to more volatility around the stock market.”

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