The bull market is just beginning! Bank of America shouts out: Investing in this asset is the right choice
Bank of America has stated that commodity investments will receive attention in the next decade, saying "the bull market is just beginning." Strategist Jared Woodard pointed out that inflation is estimated to structurally rise to around 5%, which will increase demand for commodities such as oil and gold. In 2023, the US CPI index rose by 3.4%, while commodities may bring an 11% annualized return, surpassing the traditional 60/40 investment portfolio. The price of gold rose by 21%, demonstrating strong performance
According to Bank of America, commodities are the area investors should focus on in the next decade.
Bank of America strategist Jared Woodard stated in a report last Thursday that rising structural inflation indicates "the commodity bull market is just beginning."
Commodities such as oil and gold have long been considered reliable inflation hedges. If Woodard's prediction of a significant increase in inflation comes true, investors will have greater demand for them.
Woodard pointed out that for the past 20 years, the inflation rate has been stable at around 2%, due to globalization and technological trends. However, the United States may soon return to the inflation trend before 2000, when inflation averaged about 5% annually.
Woodard said, "The reversal of these forces means inflation will structurally shift back to 5%." The US CPI index rose by 3.4% in 2023, with July data showing a year-on-year increase of 2.9%.
While it is hard to imagine that the trend of technological disruption constantly suppressing inflation will slow down, the trend towards deglobalization has strengthened in recent years.
Whether it is the high tariffs imposed by the United States on certain products or the support for the US semiconductor industry, these policies have hindered price declines, especially since the cost of supporting local jobs in the United States is much higher than labor costs in emerging markets.
Bank of America stated that investing in commodities may generate an annualized return of 11%, "as debt, deficits, demographics, deglobalization, artificial intelligence, and net zero emission policies all have inflationary effects."
Commodity Index 10-year annualized return
These potential returns imply that commodities will be a better asset class, replacing the 40% typically reserved for bonds in a classic 60/40 investment portfolio.
Woodard emphasized that even in the case of declining inflation and the Federal Reserve maintaining a dovish stance, the commodity index has produced an annualized return of 10%-14%, while the popular Bloomberg Aggregate Bond Index has only yielded a 6% return.
Gold has been a particularly strong force driving the strong performance of the commodity sector. Year-to-date, the price of gold has risen by about 21%, reaching a historical high. Since the acceleration of inflation began in early 2022, the price of gold has risen by 35%.
On the other hand, oil prices have performed poorly compared to gold. The trading price of WTI crude oil on Monday hovered around $73 per barrel, roughly the same level as in August 2021