- The days of ultra-low interest rates, low inflation, and supersized stock market returns are over, a BlackRock strategist has said.
- 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 markets, and now they're returning to something closer to normality.
Since the financial crisis of 2008, ultra-low interest rates and central bank bond-buying programmes have pumped financial markets full of cash. That's driven assets higher, all while inflation has been relatively low and steady.
But those days are now over, according to Nigel Bolton, co-global head of equities at BlackRock, the world's biggest asset manager.
The surge in prices in 2022 and the coronavirus pandemic have pushed the global economy into a new "regime", Bolton told Insider, by forcing central banks to abruptly hike interest rates and companies to rethink global supply chains.
Investors can now expect a decade of higher inflation and lower returns, Bolton said. Many analysts are calling it a "regime change" in financial markets.
The old days are done
The last decade and a half has been a great time to have money in the stock market.
Central banks around the world slashed interest rates to record lows in the wake of the financial crisis and bought trillions of dollars of bonds, pushing down bond yields and driving up stocks. Even with 2022's drop factored in, the S&P 500 has risen around 500% from its 2009 trough.
Investors have also enjoyed decades of stable inflation, with prices in the US growing 2.2% a year on average in the 20 years until the pandemic struck in February 2020.
Yet Bolton said the times have changed. Although inflation looks like it'll peak in the coming months, it's unlikely to drop back to its previous levels, he said.
"The chances that we're going to get back to the regime that we had in the previous 10 years, of very low, 2% type inflation, I think that is very unlikely." Bolton said.
He said cheap labor from China was a key factor in keeping wages and prices down, but workers there are about to become more scarce as population growth slows.
The global push to decarbonize economies is also likely to nudge inflation higher, Bolton said, not least by driving up the price of metals like copper which are heavily used in renewable energy.
Many other investment firms, and even central bankers, also think a regime change is underway. Christine Lagarde, President of the European Central Bank, declared the era of low inflation to be over in July.
"There are forces that have been unleashed as a result of the pandemic as a result of this massive geopolitical shock we are facing now that are going to change the picture," she said.
The outlook is murkier
So what does it mean for investors? Crucially, stronger inflation will mean higher interest rates, Bolton said.
"I do think that the returns to frankly all asset classes are going to be lower," Bolton said. He said investors should now be focused much more on whether stocks are good value, as opposed to simply piling into the fastest-growing tech names.
The ultra-low bond yields of yesteryear drove investors towards speculative corners of the market, fuelling 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 effectively costless capital, almost, in many areas."
He added: "I think we're just going back into a more normal environment, where there is a bit more inflation around, interest rates are going to have to go up and they will go down. So there'll be more volatility around that macro environment and that will lead to more volatility around the stock market."