A screen showing the Dow Jones Industrial Average after the closing bell on the floor of the New York Stock Exchange on December 13, 2023.
Brendan McDiarmid | Reuters
Supercycles are typically defined as extended periods of economic expansion, often accompanied by GDP growth, strong demand for goods resulting in higher prices, and rising employment levels.
Oppenheimer said that the most recent momentous cycle in the global economy began in the early 1980s, as he discussed the content of his recently published book, “Any Happy Return.”
He explained that this was characterized by interest rates and inflation peaking, long before the costs of capital, inflation and interest rates fell, as well as economic policies such as deregulation and privatization. At the same time, Oppenheimer noted that geopolitical risks have declined and globalization has become stronger.
He added that it is not expected now that all of these factors will continue as they were.
“We are unlikely to see interest rates head down strongly over the next decade or so, as we are seeing some de-globalization and, of course, also seeing increasing geopolitical tensions.”
The Russia-Ukraine war, tensions between the US and China that are largely related to trade, and a conflict between Israel and Hamas that raises concerns about the broader Middle East, are just some of the geopolitical topics that markets have been concerned about in recent months and years.
Oppenheimer said that while current economic developments should theoretically slow the pace of financial returns, there are also forces that could have a positive impact – namely artificial intelligence and decarbonisation.
He explained that artificial intelligence is still in its early stages, but as it is increasingly used as the basis for new products and services, it could lead to a “positive impact” on stocks.
The hot topic of artificial intelligence and productivity, which often goes hand-in-hand with discussions and concerns about replacing or changing human jobs, is likely to impact the economy.
“The second thing is [that] We haven't seen yet, and I think we're relatively optimistic that we will see, [is] “Productivity improves on the back of AI applications, which can be positive for growth and of course for profit margins,” Oppenheimer said.
Although AI and decarbonization are relatively new concepts, there are historical similarities between them, Oppenheimer explained.
One historical period that stands out is the early 1970s and early 1980s, which he said were “not that different” from current developments. He said higher inflation and interest rates may have been more structural issues compared to now, but factors including rising geopolitical tensions, higher taxes and strengthening regulation look similar.
In other ways, Oppenheimer explained, current transformations can be seen as a reflection of changes that occurred further back in history.
“Because of this massive dual shock that we are likely to see, the positive shock of technological innovation at a very rapid pace coupled with the restructuring of economies to move towards decarbonisation, I think this is a period closer to what we saw in late 19y century,” he said.
Modernization and industrialization fueled by infrastructure and technological developments combined with significant increases in productivity characterize this historical period.
Crucially, Oppenheimer noted, these historical similarities could provide lessons for the future.
“If we look back in time, structural cycles and discontinuities repeat themselves but not in quite the same way. I think we need to learn from history what conclusions we can look at in order to determine what is best for this kind of change. The environment we are moving into “
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