Stock Market Influences For the 2010s

Review of Trends That May Affect The Next Decade's Investment Return

Jan 3, 2010 Richard Mudhar

Profit from knowing some of the many known macroeconomic changes coming in the 2010s that could affect investment performance.

Investing in the stock market is always subject to the risk of unexpected "Black Swan" events that can hammer short term returns. To paraphrase Donald Rumsfeld, those are the unknown unknowns. However, there are some pretty big changes coming in the next decade that are known knowns, which will also have an effect on returns.

Some Big Trends That Will Start to Happen in the 2010s

Some of these changes in the 2010s such as demographic shifts are known events that will come about. Others are likely, though not guaranteed. These trends include:

• The Baby Boomers (born ~1946 to ~1964) will begin retiring
• Peak Oil may be observed
• Western Societies (particularly mainland Europe) will have an age profile skewed towards the elderly
• The non-Western world will urbanise, and the working age population will increase
• A lot of Western government debt will have to be repaid, or in some cases default
• There will be some shift of capital and economic power from the West to Asia
• World population will increase by about 3/4 of a billion people over the decade

Along with these large trends there are other trends that are likely to occur, though they depend on economic forecasting. As the last decade has shown, such forecasting is not particularly reliable, and sometimes depends on the forecaster's particular point of view. Such trends are perhaps the known unknowns, including:

• A rise in Western interest rates from the low levels in 2009 which are the result of government intervention.
• Possible concerted effort to reduce CO2 emissions from the levels they would be under business as usual.
• A fall in the value of the US$ and the UK Pound in particular, relative to other currencies.
• A possible rise in the value of the Chinese currency relative to the dollar.
• Food and water stresses in Asia as groundwater is harvested unsustainably.

How These Macroeconomic Trends May Be Likely To Affect Investment Returns

The answer to this is, of course, the key question. The retirement of the baby boomers is likely to result in a slow drain of money from investments in Western stock markets (where a lot of these pension funds have been invested). This is unlikely to improve returns. Peak Oil is another hazard that would have a very negative impact on the worldwide economy.

Some of the demographic factors favour non-Western regions. Commentators including the Financial Times call these emerging markets but they will probably be called something else by the end of the decade.

The 2010s Will Be a Difficult Decade For Investors

The great sucking force of money from Western stock markets due to the baby boomers retiring, combined with the potential hazard of oil shortages and extreme volatility make the coming decade a more difficult one for stock market investors than the last.

2000-2010 hasn't exactly been a walk in the park as the dismal performance of the DJIA and FTSE100 indices over the last 10 years shows. Some of this is an artifact of the 'irrational exuberance' of the dotcom boom at the beginning of the decade. Nevertheless, the headwinds for the coming decade look formidable, though there are opportunities in emerging markets, commodities, food and perhaps oil too for the nimble or the lucky!

Sources

UN, World Population to 2300

Financial Times - The Decade in Markets

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