Within 20 years, more than half of the world’s population rises out of poverty—while the median age in developed countries jumps by five years. The U.S. heads toward energy independence and natural gas prices plummet as advances in technology drive a boom in extraction. Climate scientists studying the rise in sea levels revise their forecasts upward. Technological innovations, such as low-cost 3-D printing, fuel a resurgence in U.S. manufacturing. The U.S. Federal Reserve extends a monetary easing policy that could boost the economy but also risk inflation, as central bankers around the world move markets with unprecedented power.
Economists, researchers, strategists and investment experts throughout Bank of America Merrill Lynch and U.S. Trust have identified three major themes underlying what they believe to be today’s global transformations. First, amid rapid strides toward energy self-sufficiency, we’re seeing a surge in U.S. business and technological innovation that has the potential to revitalize the economy and spark another long-lived bull market. Second, far-reaching shifts in the financial markets are presenting investors with unprecedented opportunities—as well as unanticipated risks. At the same time, a massive rebalancing of the world’s economic, political and social power is under way. The rapid rise of a powerful middle class, alongside a global need for essential resources that’s set to explode in coming decades, is intensifying the need for a new approach to investing.
“The rebalancing of global growth from the developed to the developing world is a trend we’ve been discussing for some time,” says Chris Hyzy, chief investment officer at U.s. trust. “Demographic changes—some that benefit the world economically, some that increase risk—are creating imbalances that are changing the nature of global growth.
US Energy independence
For almost 70 years, the U.S. has had to depend largely on imported energy. Now, even though the U.S. still imports roughly 25% of its energy—chiefly petroleum—there’s a growing consensus that the nation is well on its way to becoming energy-independent. The impetus for this is the boom in extracting oil and natural gas from shale rock formations, and the technological innovation that has made it economically feasible.
By 2015, the US will have another 1.5 million barrels per day from shale oil.
Shifts US Labor Market
During the recession and the sluggish recovery of the past few years, labor costs have dropped significantly. This has been painful for American workers but it has made US manufacturing more profitable and competitive. Workers will not regain leverage until unemployment drops below 6%.
A solid housing market seen for the next decade
US housing prices rose 8% in 2013. The forecast is for housing prices to rise 40% over the next decade. The average annual gain would be 4% which would be half as well as in 2013. This would be faster than inflation. The 2013 gains boost GDP by 0.5% and created 27000 more construction jobs each month. A continuing strong housing market would boost GDP by about 0.25% per year.
Inflation is expected to be 2% per year for the next two years.