Global deflationary environment
After the subprime crisis in 2008, investors around the world (ACWI) (VTI) worried about their investments. Global deflation became a major investment theme for investors after the subprime crisis. The slower nominal growth rate was also another major concern for investors after the crisis.
Now it looks like this era of global (VEU) (VT) deflation and slower nominal economic growth seems to be ending. The prolonged lower interest rates and quantitative easing (or QE) that have driven investment returns in the last eight years will see an end. The persistent lower interest rate artificially boosted asset prices.
Expected rise in inflation
The expected rise in inflation is improving confidence in the economy (QQQ) (SPY). On November 9, 2016, the ten-year break-even inflation rate rose 5.2%. The increase in the inflation index came after Donald Trump’s win. Energy and metal commodities are major inflation drivers in the US economy (VOO) (IVV).
According to Richard Bernstein’s 2017 inflation returns report, global deflationary pressure and stagnation ended last February. Inflation plays a major role in market movements. The expected rise in inflation could also increase the probability of an interest rate hike, which could also help to increase nominal economic growth.
In the next part of this series, we’ll analyze Richard Bernstein’s view on different sectors of the economy.