Article content

The longer market cycles go on, the more investors turn uncertainties into assumptions.

We’ve been on a one-way street since 2009. There’s been the odd bump in the road, but generally we’ve had an expanding economy and rising stock markets. At this point, it’s worth exploring three important drivers of this period to determine if we’re indeed treating uncertain variables as foundational assumptions.

We apologize, but this video has failed to load.

tap here to see other videos from our team. Try refreshing your browser, or If you think low rates and high debt levels can last forever, think again Back to video

1. Interest Rates

Assumption: Interest rates will remain low because governments and individuals can’t afford higher rates.

When it comes to rates, the affordability argument is regularly put forward, but it’s losing its punch for two reasons.

First, bond buyers are not in the business of giving governments and households what they need. Rather, they’re seeking a return that will leave them better off for taking the risk. If they can’t get a reasonable, real (after inflation) return, they’ll demand a higher yield and/or look for substitutes.