The New Normal Has Arrived…Now What?

As new economic and geopolitical trends sweep across the globe, we’re going to witness new market conditions that will result in lower levels of certainty for investors than we’ve seen in the past, according to Bank of America. 

After a tumultuous year, BoA isn’t anticipating it getting much better for investors in the next 5 years. This is due largely to the return of the big government era and the end of the era of cheap money. As we get into this shift, advisors will need to be paying particularly close attention to risk levels in their portfolios. 

With the war overseas and rising tensions between the U.S. and China, governments across all levels are going to be more active. As a result, BoA is anticipating that big government will disrupt the market and increase costs on the economy, reduce corporate earnings, and trigger trade tensions and retaliation with the U.S.’s trading partners.

The rising levels of government debt will likely lead to greater risks. Couple that with the freezing of Russian financial assets, price caps on Russian energy exports, and the embargo on semiconductors to China, investors will want to take a closer look at where their money is and determine if their portfolios can withstand the higher cost of capital.

As this shift starts to go into effect, it’s time for advisors to start preparing their clients’ portfolios to weather these new trends. BoA is recommending that advisors and investors try to avoid larger companies that could get caught in the international crosswires and instead look to small and mid-cap companies. If you’re not sure your current broker-dealer is ready for these changes, it just may be the right time to look at the opportunities of making a move.

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