Bill Smead of Smead Capital Management says the next decade for the U.S. stock market will look very much like the 1970s. For investors, particularly ones that belong to millennials, the question is, what does it really mean for their long-term investment strategy?
Smead’s remarks on CNBC’s “Squawk Box Asia”
Simply put, it means that homebuilders and energy stocks are once again going to be the “darlings” in the upcoming years. On CNBC’s “Squawk Box Asia”, Smead said:
Warren Buffet showed in his annual meeting in May that out of the 20 largest cap companies in 1989, 12 were oil companies. Inflation went from 3.0% to 11% during the 70s, and in the next ten years, oil and real estate were the two best-performing sectors.
According to Smead, U.S. citizens usually hedge against inflation by owning their house, which further adds to his bullish stance on homebuilders and real estate at large.
Similarities between now and the 1970s
Smead built his thesis around several similarities between now and the 1970s. He said:
In the late 60s, the U.S. fought the Vietnam war and simultaneously launched the Great Society, borrowing a lot of money. This time, we’re fighting the pandemic war and saw the largest expansion of government assistance, borrowing up to $5 trillion.
Right after these events, he added, the first oil embargo came along in 1974 and “all hell broke loose”.
At the time of writing, the XOP ETF that tracks U.S. oil and gas exploration and production companies is up more than 70% on a year-to-date basis.
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