Many investors have come to rely on asset allocations modeled on the old economic order: decades of globalization, falling inflation, slowing economic growth and declining interest rates. We believe the old order is shifting and the global macro environment is now clearly moving in favor of real assets, which can include everything from commodities to real estate to natural resource equities to infrastructure.
Consider how the global economy, which languished in the years following the financial crisis, is now expected to accelerate as more countries embrace fiscal stimulus policies. Meanwhile, inflation has generally been on a steady climb in the U.S. and globally since mid-2015. And the Federal Open Market Committee has raised rates three times in the past 18 months, after no rate hikes since 2006.
We believe this suggests the market is now at an inflection point. But with stocks and bonds trading at or near all-time highs, many investors are on the lookout for assets that can both provide added diversification and withstand the increased risk of inflation surprise.
To see why investors should consider real assets to fulfill these dual goals, let's look at five trends that broadly reversed in 2016 and are most likely to influence markets in 2017 and beyond.