One bearish investment chief is warning of a rough decade for the stock market—but he sees one unusual safe-haven investors should consider piling into for shelter.
Bill Smead, the chief investment officer at Smead Capital Management, said his firm is bullish on commodities, specifically on energy and real estate. That’s because he’s eyeing a lost decade for stocks—a period in which the US market could see little to no returns.
“What can do well in this monstrously expensive S&P 500 Index in a decade of heartache? Look no further than the 1970s,” Smead wrote to clients on Thursday, pointing to how commodities vastly outperformed other asset classes in that decade.
Stocks, US Treasurys, and corporate bonds all lost value in that era, though commodities were up 324%, Smead, whose firm manages more than $4 billion in assets, said.
“We are expecting inflation in energy prices and a decline in interest rates when the poop hits the AI mania fan,” he said, adding that his firm is overweight on oil stocks and home builder stocks in particular. “These industries prospered in the 1970s, once the stock market mania broke in late 1972,” he added.
Talk about a lost decade in markets has picked up as investors begin to fear that the stunning gains in recent years are unsustainable. Smead pointed to the exuberance for tech stocks in particular, with information technology stocks in the S&P 500 up 187% over the past five years, compared to the 45% gain in the ProShares S&P 500 Ex-Technology ETF over the same time frame.
Smead also pointed to concentration concerns in the market, with the information technology sector now making up around 40% of the overall benchmark index.
More forecasters have also been drawing comparisons of the current market climate to the 1970s. Alongside a huge run-up in mega-cap stocks, investors are also beginning to feel the ramifications of an oil price shock, which defined much of the market’s performance in the 70s.
Commodities, one area of the market that has tended to outperform during inflationary periods, has already started to gain alongside the surge in oil prices. The AI boom has also fueled demand for commodities, like silver and copper.
The iShares GSCI Commodity Dynamic Roll Strategy ETF, one fund that tracks an index of commodities, is up 37% year to date.
“The Index will get slaughtered because it is massively over-weighted in technology and tech-related stocks,” Smead said of the broader S&P 500, adding that he believed the market looked to be in “Late-Stage Mania.”
Concerns about high valuations and inflated earnings have flared up intermittently in recent years, though overall enthusiasm for the AI trade remains strong. Investors dumped chip names amid earnings disappointment this week, but appear to be rotating to other tech names, with the Nasdaq 100 on track to end the week in the green.