Who is right?

Forecasting what the next 10 years in the market will bring us is an incredibly difficult task, but it doesn’t mean folks won’t still take a stab at it.

Goldman Sachs believes the S&P500 will be extremely “blah” for the next decade, only delivering an average nominal return of 3% annually. This take isn’t too outlandish, as one would expect a slowing US economy facing high interest rates AND sticky high inflation to be living in a stagflationary environment.

All hope is not lost however (at least for now) as our Chief Investment Officer Kevin Harper points out there are several tailwinds that could continue to propel a bull market.

• While all of us are exhausted with the high prices of just about everything, the consumer’s financial situation hasn’t been completely exhausted yet. Consumer balance sheets are on solid footing and delinquencies are within the normal range.

• Next, the Fed’s willingness to move forward with a 50bp rate cut shows they want to support continued economic expansion…and thus allow the “Fed Put” theory to remain. This essentially means if economic conditions worsen, the Federal Reserve will step in to provide support. This obvious cause-effect scenario leads many investors to feel confident owning risk assets as any foreseeable bump in the road would be offset with the help of our Fed.

• Thirdly, the strength of corporate balance sheets has allowed many companies the luxury of retaining employees even during a slowdown (any McKinsey consultant will tell you firing & rehiring is WAY more expensive…), not to mention the US economy has become less tethered to manufacturing and more to service-oriented businesses. This reduces cyclical risk exposure.

Now, what could derail all of this? For starters, inflation is still hanging tough in our economy and if it were to return to elevated levels this would throw a major wrench in the Fed’s plan to continue lowering interest rates. If rates moved meaningfully higher it would pose risks to several equity & fixed income sectors and put pressure on stock market valuations which are currently elevated as-is. This could lead to a potential correction.

Given so many near-term variables in the mix, coupled with the fact our country will continue to print and debase its currency, the high number of possible outcomes should likely contribute more volatility to investing markets. Therefore, an investor should be ready to have his/her risk tolerance tested. Additionally, knowing what assets to hold in an inflationary environment is critical.

Finally, here is what’s on my radar:

lending & credit

Everyone recalls the insanity going on in the new & used car markets during COVID.. and now it seems some of the mania is beginning to financially unwind itself.

Edmunds is out with a report showing 20% of Americans are currently under water by $10,000 or more on their vehicle’s equity.

The main culprits of this are A: people paid historic comps for new & used vehicles in 2020-2021 and B: many borrowers took on unusually long loan terms (as long as 8 years!) which obviously means the early car payments are heavily weighted by interest expense rather than principal reduction.

macro

Whether you’re voting for Trump or Harris, whether you think we’re headed for a bull or bear market, one thing should be fairly conclusive: The United States of America has a spending problem.

In 2024 we spent almost 25% of our nations tax revenue on interest expense. This figure is expected to jump to 30% in 2025.

Even famed investor Paul Tudor Jones didn’t mince words about the situation. He doesn’t like any of the options he laid out, but he concedes something HAS to be done. His view: “All roads lead to inflation”.

bitcoin

When State Street Advisors launched their Gold ETF (GLD) back in 2004 it marked an important sea change in the way investors could get easy exposure to an alternative asset. GLD let investors own gold in a brokerage account that was backed 1 : 1 with the physical asset. In addition, GLD was a massive hit with investors, bringing in over $1billion in assets in just 3 trading days.

While that is indeed a major accomplishment, it becomes dwarfed by the adoption rate of Bitcoin ETF’s which give investors easy 1 : 1 exposure to the price of Bitcoin in a brokerage account.

This chart from Bitwise shows just how impressive the Bitcoin ETF launch has been compared to the Gold ETF.

It’s still in the early innings…

Clark Gaines focuses on alternative investment strategies at Almanack Investment Partners, and is based in Charleston, SC.

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