There are three big-picture changes going on in the world that investors should be wary of and plan for accordingly, in the opinion of
BlackRock's Rick Rieder.
Rieder, chief investment officer for BlackRock's fundamental fixed income, said that distinguishing between "daily noise" and really meaningful market signals has never been tougher.
"In other words, it's worth stepping back and considering these three broad shifts that I believe will hold an outsized impact on effective investment decision making in the years ahead," Rieder wrote on his firm's blog.
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The first big picture item investors should stay focused on is the developed world's aging demographics — those older than 60 were approximately 15 percent of the population in 1975, but will be 30 percent by 2025, the United Nations has estimated.
"Demographic shifts of this kind can stress an economy because it's generally the working-age population . . . that delivers both gross domestic product (GDP) growth and capital market appreciation," he noted.
In addition, an aging population stresses governments' ability to pay for entitlement programs, leading to more debt.
The second big picture item Rieder is focused on is a more positive one, at first glance.
"The United States seems to be in the process of departing a regime of financial repression, i.e., one where a government takes measures to channel funds into its own debt," he explained. "Indeed, the budget deficit as a percentage of GDP has improved markedly over recent quarters and this has required lower levels of debt issuance."
Loosening credit is also helping at the corporate level, according to Rieder. "In other words, cheap financing and easy financial conditions can create a framework for equity optimization that allows risk asset prices to grind higher even in the face of what some believe are extended valuations."
His third big-picture item is related to technological change. "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," Rieder predicted.
His bottom line forecast is that the Federal Reserve may raise rates earlier than many economists are predicting.
"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."
David Blitzer, chairman of the index committees at S&P Dow Jones Indices, also suggested the Fed could act before markets currently expect.
"The second half of 2015 seems too far away unless the economy suddenly sours; a better bet is Spring 2015 when the unemployment rate is likely to be between 5.5 percent and 6 percent and the economy will have a string of four quarters of respectable growth," Blitzer wrote on his firm's
Indexology blog.
"The first Fed rate hike after a long period of monetary ease usually spooks the market."
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