U.S. Enters 'New Age of Austerity' As High Rates and Inflation Constrain Growth, Stocks and Government Spending
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The U.S. is transitioning from a decade of abundance fueled by low interest rates and high government spending to a period of austerity, according to Jim Masturzo of Research Affiliates.
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Higher interest rates will limit economic growth, stock returns, and home prices while ballooning the national debt and interest costs. This will reduce the government's ability to stimulate the economy during downturns.
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Persistently high inflation averaging 2.6% over the next decade will hurt corporate profits and require lower PE multiples for stocks.
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Investors should shift away from growth stocks with high valuations and favor value stocks, commodities, and other hard assets that can outpace inflation.
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After an era of fantasy-like asset returns, fundamentals like corporate earnings, valuations, and interest costs matter again. We've entered a new age of austerity.