DoubleLine Capital: Jeffrey Gundlach on the End of Secular Norms

For the past 40 years, investors have been able to follow one big trend. That’s because interest rates peaked in the early 1980s from their prior cycle. Investing in bonds at the time provided massive returns as rates declined.

So did investing in stocks. Lower interest rates and lower inflation created a massive trend. And technological developments like the internet created a boost in productivity. Today’s AI technologies may do the same in the years ahead.

However, there may also be a new secular trend of rising interest rates. The past year saw the Federal Reserve raise interest rates back to their 2007 levels, the highest in 15 years.

And even if the Fed cuts rates, it may not go back to zero. Future rate hike cycles may move higher than the current one.

History suggests that the credit market has long-term cycles much like that. From the 1940s to the 1980s, interest rates trended higher overall as well.

Those higher costs to borrow money may impact today’s government spending policies. Besides having to pay more to finance deficits, it could mean less capital moving to the private sector.

Should such a trend play out, investors would want to look defensively with assets such as gold, gold mining stocks.

Companies that can raise prices faster than inflation and who have excess cash flows and don’t need to borrow could also be winners.

However, a historical trend of rising interest rates will likely mean lower stock returns on average.

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