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Stocks will see very low returns for a long time as markets deal with the aftermath of the pandemic, Norway’s sovereign wealth chief says

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Reuters / Brendan McDermid

  • Stocks could see low returns for a long time, according to Norway’s sovereign wealth chief Nicolai Tangen.
  • That’s because financial markets are still reeling from $30 trillion in losses last year. 
  • Investors could also be surprised by a new rate-hike cycle from the Fed, he said. 

Stocks will see very low returns for a long time, because markets are still reeling from the aftermath of the pandemic, according to Norway’s sovereign wealth fund chief Nicolai Tangen.

That’s largely because stocks soared to overvalued heights in previous years, inflated with ample liquidity flooding into the market from global central banks. Most of that “crap” has been cleared out, Tangen said, but it doesn’t mean that volatility is over. 

“We have not seen the secondary effects of the $30 trillion in wealth destruction we saw last year,” Tangen said in an interview with the Financial Times on Wednesday, referring to the brutal rout in global stocks last year. The MSCI All-Country World Index of stocks lost about 20% of its value in 2022 alone – and markets have yet to see the consequences of that. 

Economists have warned of “unsettling volatility” as markets snap back from over-liquid conditions, with legendary investor Jeremy Grantham warning the asset “superbubble” could soon burst. 

“I think we will see a long period of time with very, very low returns,” Tangen said. “I think it takes a long time to sweat it out.”

Market bulls have been hoping for a quick rebound after stocks tanked 20% last year, battered by inflation headwinds and the Fed’s aggressive rate hikes. The US central bank raised interest rates a hefty 425-basis-points last year to tackle inflation, weighing heavily on stocks and stoking fears that the Fed will spark a recession.

Tangen said another cycle of rate hikes was “not that unlikely,” which could put more pressure on US equities. Markets are currently expecting the Federal Reserve to raise rates another 25 basis-points in February and March before hitting the brakes. Meanwhile, Bank of America, Morgan Stanley, and Deutsche Bank  at the end of last year all forecasted a 20% fall in stocks as macroeconomic conditions deteriorate. 

Read the original article on Business Insider