The pace of technological changes. In recent decades, new technologies have displayed a remarkably rapid diffusion into general use, displacing employment in many sectors of developed world economies. This is only likely to continue in the years ahead as many more jobs are automated and fewer workers are required. As such, structural unemployment is likely to remain elevated and broad-based wage growth should stay suppressed, helping to hold down core inflation (inflation in the real economy is driven by increasing wages for the labor force).
So why do these three shifts matter? It’s vitally important for you to attempt to understand the broader secular factors impacting economies and markets today. Appreciating their influence can help you position yourself defensively, when needed, or potentially capture compelling investment opportunities.
For instance, as my colleague Russ Koesterich wrote in a Market Perspectives paper a while back on the developed world’s changing demographics, in an aging world, markets offering growth are likely to command a premium.
At the same time, once you have an understanding of these shifts, it’s easier to grasp why we may well see the Federal Reserve (Fed) raise rates earlier than many market participants expect. Today’s excessively low rates are encouraging many potential retirees to stay in the labor force longer, crowding out the younger generation and helping fuel high levels of student debt. At the same time, they’re also encouraging corporations to engage in aggressive stock buybacks at the expense of capital reinvestment.
Source: BlackRock Research
Rick Rieder, Managing Director, is BlackRock’s Chief Investment Officer of Fundamental Fixed Income, is Co-head of Americas Fixed Income, and is a regular contributor to The Blog. You can find more of his posts here.