Source: Jin10 Data
Author: Yang Large Cap

Is Little Cow quietly growing? Bank of America specifically pointed out: investors must pay attention to this field in the next ten years!

According to Bank of America, commodities are the sector that investors should focus on in the next decade.

Bank of America strategist Jared Woodard stated in a report last Thursday that the rise in structural inflation indicates that "the commodity bull market is just beginning".

Commodities such as oil and gold have long been considered reliable inflation hedging tools. If Woodard's prediction of a significant increase in inflation comes true, investors will have greater demand for them.

Woodard pointed out that the inflation rate has remained stable at around 2% for the past 20 years, due to the trends of globalization and technology development, but now the US may quickly return to the inflation trend before 2000, when inflation increased by about 5% on average each year.

Woodard stated, "The reversal of these forces means that inflation will structurally shift back to 5%." In 2023, the US CPI index rose by 3.4%, with July data showing a 2.9% year-on-year increase in the index.

Although it is difficult to imagine that the trend of technological disruption constantly suppressing inflation will slow down, the trend of globalization has strengthened in recent years.

Whether it is the high tariffs imposed by the United States on certain products or the support for the U.S. semiconductor industry, these policies have hindered price declines, especially since the cost of supporting domestic jobs in the United States is far higher than labor costs in emerging markets.

Bank of America states that investing in commodities could generate an annualized return of 11%, "because debt, deficits, demographics, deglobalization, artificial intelligence, and net zero emissions policies are all inflationary".

These potential returns mean that commodities will be a better asset class, replacing the 40% usually reserved for bonds in the classic 60/40 investment portfolio.

Woodard emphasizes that even in a scenario of declining inflation and the Federal Reserve remaining dovish, the commodities index has still generated an annualized return of 10% to 14%, while the popular Bloomberg Barclays Total Bond Index has only yielded 6%.

Gold is a particularly strong force driving the strong performance of the commodities 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, the price of oil has performed poorly compared to gold. The trading price of WTI crude oil on Monday hovered around $73/barrel, roughly the same level as August 2021.

Editor/rice