|The U.S. is on the cusp of switching from a decade of plenty to a long and painful period of austerity.
So writes Fortune senior correspondent Shawn Tully in a new piece examining the forces that may exert control of the markets and economy heading into 2024. Speaking with Jim Masturzo, chief investment officer at Research Affiliates, a firm that oversees strategies for over $130 billion in mutual funds and ETFs for the likes of Pimco and Charles Schwab, Tully writes about how the year could play out:
“Masturzo concedes that in the short term, ‘The economy could remain buoyant and investors resilient.’ But he believes that the big federal spending and ‘free money’ Fed policy that funded the bash will soon leave a stiff hangover. ‘The macro game of musical chairs cannot go on forever,’ Masturzo writes. It was the regional banking crisis starting in March, he says, that exposed the first cracks. But after a steep selloff, frenzied excitement over the future of AI sent Big Tech soaring once again.”
“Now, Masturzo believes the economy and the markets stand near an historic inflection point that can only temporarily be averted by such probably ephemeral phenomena as the AI craze and the favorable Nov. 14 CPI report that got shares jumping. The exhaustion of the COVID money, the end of student loan forbearance, and the stubbornly rising prices bound to spook consumers will ‘pave the way for an eventual recession,’ and usher in years of austerity.”
This will have profound effects on the markets, too. As Tully writes: “In the new paradigm, the best investment categories of the last decade should prove the worst performers going forward, while the beaten-down, unloved sectors of recent years are likely to thrive.”
You can read the full analysis—including which stocks are likely to thrive in the new era of austerity—here.