The whiplash of 2023's blistering AI rally and 2024's political fireworks have rightfully commanded headlines and trader obsession. But for forward-looking investors, an even more consequential force is stirring under the market's surface.
After getting pummeled by pandemic shocks and supply chain chaos, the world's path to a "new normal" remains the overarching megatrend reshaping how we assess risk and opportunity. Spoiler alert: it's all about rates.
Lori Calvasina, RBC's head of equity strategy, has her finger squarely on the pulse of this hunt for a durable post-COVID equilibrium. Her prime takeaway? The "idea that the post-COVID era will look very different from the post-GFC era and even the post-Tech bubble era continues to resonate with many investors."
On a philosophical level, this paradigm shift resets the expectations game entirely. The old normal of juicing markets with rock-bottom interest rates and unbridled money printing is extremely passé. In its place, a higher plateau of slightly elevated - but still historically tame - inflation, interest rates, and economic growth.
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No more crisis-level life support is needed. But this new normal does require recalibrating how we define "cheap" borrowing costs and adequate investment returns.
The welcome giveback? Less long-term reliance on unsustainable financial crutches in exchange for a healthier organic recovery. As Calvasina stated, the trade-off is "a healthier underlying economy than what had been experienced post-GFC."
Let that marinate for a moment. After over 15 years of crisis policy distracting from more organic growth, markets are re-learning to walk on their own two legs. It's undoubtedly an adjustment period - but one investors seem increasingly at peace with.
Why does this new normal mindset trump AI and election theatrics glittering in the spotlight? Because it focuses the investing psyche on identifying the northstar for future portfolio positioning rather than trading predictable short-term crosscurrents.
Seizing the AI megatrend is undeniably crucial over the next 5-10 years. And yes, the White House shuffle in 2025 will absolutely create some volatility and sector rotations. But these are ultimately temporary speed bumps.
The post-COVID reset, however, establishes a new baseline from which to handicap stocks, bonds, real estate and every other asset class for years - if not decades - to come. Getting that equilibrium rate right has permanent portfolio implications.
Maybe the neutral interest rate settles around 3.5%. Or 5%. Locating that Goldilocks zone ensures you're not overpaying for growth yet still generating sufficient income and total returns. A few percentage points can mean millions in oversized gains or missed opportunity costs.
The AI breakthroughs and midterm political winds will grab headlines in the months ahead. But neither flashes the enduring importance of deconstructing this transitional post-COVID "great rate reset" unfolding in real-time.
The sooner investors internalize this new normal framework, the quicker their portfolios can be future-proofed for the next bull cycle. Embracing this mindset shift is 2024's most critical investment decision by far.
