“Inflation will stay elevated higher and longer than the market predicts.”
Or perhaps return to normal rates permanently?
World globalization has been disrupted. Developed nation states are bringing back manufacturing of strategic items. Those items will now cost more as labor costs are much higher thus driving some inflation. This is a structural change in the U economy not just a normal economic cycle.
Also within the USA the aging demographics will exacerbate higher labor costs. Perhaps that will stimulate congress to finally address immigration policy. Because those returned manufacturing factories require skilled/educated workers not strong wrench turners. Those currently flowing across the border into El Paso likely do not have the skill to worker the new chip manufacturing plants that are being constructed now.
“Stocks are still overpriced. Wait until share prices come down.”
I am in complete agreement with the above statement.
But I would further state that when stocks recover they will not return to former highs which were supported by low interest rates because we ain’t returning to them days. We will have returned to normal inflation rate of 3-5%.
And at that level a portion of “zombie” corporations will be going bye-bye increasing downward pressure upon the market.
And methinks increased interest rates will reduce corporate profits & reduce GDP growth.
The increased interest rates could bring a revival of the 60/40 portfolio & the bond market as bond will be giving a real return now to investors.
And developed nation states will benefit as they inflate away the much higher national debt levels. In effect stealing from savers and elderly slowly. The key word is slowly as not to generate a political backlash from the voting public.
Energy - I think old-style energy will still provide good returns for a few years, but as time passes they will become a declining industry over a few decades (like Detroit automakers did). New style energy will thrive, but that doesn’t necessarily mean large returns. There will be 100 (or 1000) large companies in new energy and only a handful will provide large returns.
Financials - as long as the capitalist world needs to allocate capital, these will be steady earners. But the biggies seem to still be too hidebound and that may allow “new finance” to get a jump on them. But it also may not, they could gobble up new finance as needed.
Healthcare - always a grower, but at some point it’ll reach a share of GDP that doesn’t allow for much more growth. We are nearing that point, so long-term these may not be as good as they’ve been in recent decades. Also, if labor becomes more expensive too quickly, their margins will suffer.
Staples - this will always be necessary, but like commodities, usually at low margins. At least it isn’t capital investment heavy like automakers are.
Utilities - probably the best bet of all for many people, especially retirees. I listened to a podcast a few months ago that claimed that utilities keep up with, and exceed, inflation regularly, AND keeps up with the S&P500 over long periods, like 30+ years. But the extra benefit is much lower volatility and regular dividends. Very good for retirees. I wish I could find that podcast again (maybe it was “Fast Money”? Can’t recall.)
Consumer discretionary - this is the sector that you will find most of your blockbusters. Consumer tastes and habits sometimes chage rapidly and become entrenched. When a company hits that sweet spot (Amazon, Apple, Google, etc), they provide the highest of returns … almost unmatched in any other sector. However, the tradeoff is that companies in this sector tend to fail more often than in other sectors.