The dawn of a new decade always comes alongside predictions of how the stock market will perform over the next 10 years. The start of the 2020s has not been an exception, with analysts predicting everything from a roaring bull market to a global recession, in some cases sequentially.

This isn’t to say the analysts are always right, with the stock market fall on March 9 taking many by surprise. The largest since the 2008 recession, trading was temporarily halted to prevent panic selling, and the price of oil had fallen by as much as 30%, kicked off largely by the threat of a price war between Russia and Saudia Arabia. At the final tally, the US was down by 7% and the UK was down by 8%. However, in typical market fashion, bouncing back didn’t take long, exemplifying just how volatile and unpredictable the markets can be.

On March 12, trading on the New York Stock Exchange was again suspended as the Dow Jones Industrial Average fell by 2,000 points following the announcement by US President Donald Trump that all travel from Europe will be suspended in response to the coronavirus pandemic. The S&P 500 fell by 7%, while the London Stock Exchange was down to below its 2016 EU referendum drop.

Almost all observers, however, point to two factors — technological change and the importance of emerging markets — as critical to the success (or otherwise) of the stock market in the coming decade. Both of these factors could lead to an unprecedented boom in the price of stocks. Simultaneously, however, the global political climate has never been so volatile. The US faces the rise of China as an economic superpower and a possible trade war with Europe, both left unconstrained by a relatively weak International Monetary Fund.

The Tech Boom?

Technological advancements, and the markets they are transforming, are likely to be one of the primary driving forces of the stock market in the next few years. We have already seen the impact of distributed technologies that are making individual consumers huge contributors to the global economy, and a number of technological advances, such as internet of things (IoT) devices, that could transform consumer markets. 

Many have seen, in the rise of tech, similarities between the 2020s and the 1920s — or even the 1720s. Every ’20s decade has brought roaring bull markets catalyzed by technological advances, and each has ended with a widespread collapse of share prices. It is important to be cautious when making this analogy, of course, especially considering the unparalleled events of the last 10 years. On the other hand, there are certainly similarities between the 2020s and these earlier periods. Government debt is at an all-time high in Europe, Japan and the United States, and is still increasing. Emerging markets are also becoming a key driver of growth. 

Other analysts are looking to other periods for analogies. UBS, an investment bank, predicts that the 2020s will offer a similar investment landscape to the early 2000s, during which period “the global internet … opened up vast opportunities.” It’s certainly true that the biggest winners from the past 20 years have almost all been internet-focused. Companies that make CMS systems, as well as infrastructure providers such as web hosts, are now major players in the world economy.

While these sectors are likely to remain important areas of growth in the 2020s, investing in them presents unique challenges. Many of these businesses are built on a relatively novel model, in which products and services are not bought outright. Instead, in the last few years, many companies have moved to a subscription model, in which software, business consultancy and even transport infrastructure is offered as a service. The implications of this shift are explored in a recent analysis of the software as a service (SaaS) model by BlueTree, which points to benefits for stock market investors. On the other hand, as these complex networks get harder to secure, cybersecurity is also going to be a huge concern for the economy of the 2020s.

The End of the Stock Market?

At the other end of the spectrum, there are those that predict that the 2020s will witness a dramatic decline in the value, and the importance, of the stock market — or at least stock markets in the West. Curiously, these analysts have looked at precisely the same trends — the rise of tech and the growing importance of emerging markets — and come to precisely the converse conclusion: Rather than these factors driving growth in Western stock markets, they argue, they will undermine it.

Investor surveys support this view, to a degree. Nexthash Group commissioned nationally representative research, reports Finance Monthly, that reveals a clear mandate for change. The research sought the opinion of over 2,000 UK-based investors, and a third of them reported that they would like to see more flexible ways to invest in businesses than stocks, shares or venture capital investments. Data like these have focused minds on novel investment instruments, such as digital exchanges and cryptocurrency, that have been seen as a way to break the monopoly of IPOs and the expensive exchange fees charged by traders and fund managers.

At the same time, it is worth noting that the same research found that 68% of UK investors would only trade or invest where there is security or protection against fraud for their investment.

Emerging Markets and the Next Generation

More flexible investment instruments are also likely to play a key role when it comes to investing in emerging markets. Markets outside the West have been depressed in recent years, largely due to fear of slow global growth. This has led many to see these shares as undervalued and likely to increase in importance as international tensions ease and populations continue to grow. 

“There’s huge growth potential in Asia,” Rich Sega, global chief investment strategist at asset manager Conning, told USA Today. “The geopolitical stress in Hong Kong has opened up opportunities for other areas in the region for Vietnam, Thailand and Singapore.”

Alongside the growing importance of emerging markets, there is also a widespread feeling that the emerging generations — both millennials and Gen Z — will be major agents of growth and change across the global economy. Baby boomers still hold the majority of the world’s wealth, but that will shortly change. According to a study by Coldwell Banker Global Luxury, by 2030, millennials will hold five times as much wealth as they do today, and in this period they will inherit a staggering $68 trillion from their predecessors.

This shift in wealth could certainly boost US economic growth. Young adults are likely to use these liberated funds to buy expensive items like houses and cars, giving a boost not just to these sectors but also those that are now inherently implied within them: tech, e-commerce, the IoT and artificial intelligence.

On the other hand, the last 20 years can also stand as a warning that new consumer trends, and especially the growing importance of new generations, can hugely affect the value of company stocks. Few investors, for instance, predicted the rise of the “community brand” — companies that used careful reputation management to build strong consumer communities, especially among Gen Z consumer groups. In short, shifts in consumer behavior are not going to stop this decade and, as with any decade, we are likely to see some unusual new forms of commerce arising.

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.