If you had started investing back when Investor's Business Daily first came to print, you might have visited a local stockbroker's office to open your account and called the broker on your landline phone to place buy and sell orders. And buying 100 shares of a $60 stock from Merrill Lynch would have set you back $97 in commissions.
But since then, commissions have declined mostly to zero for the individual investor, and you can use your home computer or even your cellphone to trade.
Looking ahead to the next decade, investors should have even more powerful tools at their fingertips, some driven by the power of artificial intelligence. In addition, megatrends such as AI, shifting demographics and housing shortages should provide investing opportunities. Here's a peek at how market strategists see the coming 10 years unfolding for investors.
Stock Market Forecast: Investment Tools Will Improve
The advent of technology has made trading stocks easier than ever. The decade ahead should see the development of more powerful trading tools.
Artificial intelligence, of course, will play a key role in this stock market forecast. Robo-advisors should become more powerful as they're equipped with chatbots that utilize large-language models to interact with investors in a more humanlike way.
AI-powered advisors should give investors some of the benefits of a human advisor but at a fraction of the cost. Human financial advisors can charge up to 2% in management fees; 1% tends to be the norm. In contrast, robo-advisors charge flat fees or much smaller percentages, such as 0.25%.
Wells Fargo Investment Institute senior global market strategist Sameer Samana told IBD that the offerings available to self-directed investors will continue to flower over the next decade.
"Technology will allow people to have more tools at their disposal. That'll be everything from having more access to things like robo advice, which entails everything from asset allocation to diversification to tax-loss harvesting," he said. "We don't know a lot of things about what the next 10 years will bring, but I'm pretty sure there will be more access and more tools available to individuals given where the technology is going. "
Tax-loss harvesting is when an investor reduces taxes by selling losing trades to offset capital gains on other trades.
Real World AI Uses For Investors
John Longo, distinguished professor of finance and economics at Rutgers Business School, told IBD he has already experimented with artificial intelligence.
"I recently had an interactive conversation with AI on the history of soft landings. It appears the Fed has engineered a soft landing, so I was able to talk to AI about the prior soft landings, what are the odds of engineering a soft landing, things of that nature," he said. "I thought the results were satisfactory. I felt it gave me enough information to write and speak intelligently about it."
He has a colleague who uses AI to search through 10-K SEC filings and earnings transcripts.
"You can do that today with (keyboard combination) control-F. But it's easier and more efficient to say, 'What did management say about this?' or 'Tell me what's in the 10-K about their debt that's coming due in the next year,'" he said. "So having AI be a virtual assistant for both the professional and the retail investor is a trend that we're going to see play out as we are able to upload more data into the AI engines."
And that is only the tip of the iceberg. As the technology matures and becomes more widespread, results will become more refined.
Institutions are already taking advantage of the technology. Dennis Walsh, Goldman Sachs Asset Management's global co-head of quantitative investment strategies, has said using AI to analyze meaning and context has led to "significant improvements" in the ability to extract nuance from articles, regulatory filings and documents.
Similarly, BlackRock is using its own large language models to forecast the market reaction to corporate earnings calls at a level it claims is better than OpenAI's GPT-3.5 to GPT-4.
More Power, But Remember Potential Drawbacks
Adam Ely, executive vice president of brokerage digital products at Fidelity Investments, told IBD he expects "speed, intelligence and greater democratization of investing."
"I expect increased access to consumer satellite internet will help open access to financial education and trading solutions to new regions across the globe that have limited internet access today," he said. "I also believe it will be easier for people to invest and understand potential strategies in the next 10 years, as underlying technology continues to evolve to give people tailored choices and real-time learnings as they research solutions to their financial needs."
He believes quantum computing will enable massive amounts of data to be processed at higher speeds. Fidelity also expects that automated trading and advanced analytics will enable investors to test strategies and expose risk both at higher speeds and with more precision.
Making investing more easily accessible allows more money to flood into the stock market. This acts as a catalyst for further price gains, though some areas will benefit more than others.
Better Tools Don't Necessarily Mean Better Returns
But Kari Firestone, CEO and co-founder of Aureus Asset Management, cautioned that access to better tools may not equate to better returns.
"I don't think investors will get better returns, because the market quickly incorporates each new advance and catches up quickly," she said. "Every time we have better tools, they are used. Intelligence about companies, market trends, fundamental research and technical research is incorporated into the market as soon as it is available."
And better investing tools can be a double-edged sword. Wells Fargo's Samana sees potential downsides to new technology if used incorrectly.
"If they use the greater tools, the greater information to build better portfolios for the long run based on their financial goals, great," he said. "If they just use it to overreact to every piece of news that comes out and try and exploit it, that's probably where institutional investors will continue to maintain an edge because they have armies of folks and a lot more horsepower with respect to timing and execution."
Stock Market Forecast: Key Areas To Watch
There is no point in having a powerful workbench of tools without the knowledge of how to deploy them. Homing in on the right areas will be as important as ever.
A number of trends will impact any stock market forecast, says Longo, who also serves as chief investment officer for Beacon Trust.
"The first trend that's pretty clear is that the days of zero-percent interest rates are over," he said. "Looking at specific investments, I am a fan of the Big Tech stocks and own many of them, but I do think normalization of returns is probably more likely over the next 10 years. Small cap, value and international will probably play catch-up as opposed to these megacap tech stocks falling off the cliff."
Trivariate Research founder and CEO Adam Parker sees three main areas to have exposure over the next 10 years: AI, software and life sciences.
"Those are broad buckets, but there's no question if you are a portfolio manager you want stocks that have exposure to aging demographics and health care, whether it's drug development or improving lives through testing diagnostics," Parker said. "There's no question that software and labor productivity through artificial intelligence are (also) going to be big."
AI Investing Is For Real
One thing is already clear — AI is not just a fad. With the likes of Nvidia and Super Micro Computer going parabolic earlier this year, the infrastructure buildout clearly is taking place. Microsoft, Alphabet and Meta Platforms are also important players.
The technology is expected to usher in a new age of efficiency with far-reaching impacts.
Parker expects two phases to the AI revolution. The current phase is the buildout, where data centers, chipmakers and others benefit from investment in infrastructure.
"Then the second phase is which companies are going to benefit from cost-cutting," Parker said. "The second phase will be which companies that have low net income from employees and maybe less productive business models can benefit from accurately predicting their customer and their consumer behavior. That can take a decade, whether it's in health care services, financial systems, etc. Cost-cutting will be key. I think it's likely that gross margins and profitability will be higher for the average stock a decade from now."
Parker foresees that AI will allow companies to grow revenue without adding employees in the way they did in the past. As part of this stock market forecast, he recommends investors have stocks that are either impregnable to AI or able to benefit from it.
Stock Market Forecast: Impact Of Demographics
Another investing theme that has gotten a lot of publicity is declining population growth. The trend offers investors the opportunity to invest in areas that will thrive due to the aging population.
Declining birthrates and rising death rates are making the U.S. more reliant on immigration for growth. Indeed, in 2023 the fertility rate in the U.S. came in at the lowest level in more than 100 years.
Census Bureau projections show that, under the most likely scenario, the U.S. will stop growing by 2080 and shrink slightly by 2100.
In addition, elderly in the U.S. are projected to outnumber children within the next 17 years. But the growing older population offers opportunity for profit.
"As the population ages, you have to use more health care and that's products, technology, services," Firestone of Aureus Asset Management said. "That's a megatrend that will not dissipate in my lifetime. I'm a baby boomer and my generation is going to use up a lot of resources."
Housing Demand Is Another Challenge
Housing also offers opportunities. Not enough homes are being built to meet demand. Moody's Analytics estimates the total housing deficit at 1.5 million to 2 million units — a big reason why prices are high.
Firestone calls housing "a terrible problem in this country" that requires creative solutions. While homebuilders are the obvious investing play, other opportunities lie in related areas like building materials and equipment rental firms.
"How do we solve that and what do we do about housing, and what are the changes that we are going to see in the next 10 to 20 years in terms of where we live, affordability and what the materials and processes are to build houses for less," Firestone said. "It's one of the biggest challenges we have in the developed world."
Stock Market Forecast: These Areas Could Be Losers
But as society changes, there will be losers with the potential to drag down investor returns.
"I think the things that are most likely to be bad are commercial real estate in the big cities and traditional retailing," Parker said. "A lot of the traditional retailers won't exist in 10 years in their current form."
The key here will be to scout for retailers that are adapting to the times and utilizing efficient business models.
These Measures Needed Amid U.S. Debt Mountain
Then there is the ballooning U.S. government debt to keep in mind. At the moment, it sits at more than $34 trillion and is seen mushrooming to more than $54 trillion in 2034.
The Congressional Budget Office projects federal budget deficits will total $20 trillion from 2025 to 2034. It sees the federal debt held by the public reaching 116% of gross domestic product.
Some of the greatest financial crises in history have been driven by debt. For example, the stock market crash of 1929 was caused by rampant speculation, often on margin. In addition, Weimar Germany had been flourishing due to the injection of foreign loans, which were recalled as America called in its loans. This helped pave the way for Nazi Germany, and, ultimately, World War II.
Great Recession Hit Stocks
More recently, the debt-fueled Great Recession of 2008-09 led to stunning decreases in stock prices. According to experts, a U.S. debt default would lead to a crash in the stock and bond markets. The effects would be global in scope.
Longo believes that the debt is an important issue that cannot be kicked further down the road.
"It is a major problem that has to be addressed in the coming decade," he said. "My feeling is that it will have to be addressed by a mix of three factors. One would be higher taxes, two would be less spending by the federal government, and three, which is the positive element, is growth. That will be partially fueled by AI and by other technology-oriented advances."
Longo is in favor of a requirement for balanced Federal budgets, except in periods of extreme economic distress such as the Great Recession or the Covid pandemic.
"We've only run a surplus in the U.S. really twice," he noted. "Once (was) during the Clinton administration and once during the Eisenhower administration. So running a deficit is something that we have done for a long time. A first step might be to get it towards less than 3% of GDP, and a second step might be to try to inch toward a balanced budget unless there's ... extreme economic circumstances."
The stock market could also play a positive role. Longo says one way to close some of the gap in Social Security funding would be to permit a portion of the funds to be invested in equity index funds, a measure previously suggested by George W. Bush and backed by BlackRock CEO Larry Fink.
Debt Worries And Stock Market Forecast
Firestone, however, says that while she would prefer the government debt to be lower, the risk is difficult for investors to factor into their investing.
"I don't think of my investing universe as having a big discount on it based on the government debt. It's kind of like factoring in 9/11 again," she said. "I don't know how to apply that discount to the market because (the debt is) there. If you are worried about it, you're not going to invest."
Parker is skeptical that the government debt will become an issue to U.S. investors over the next decade.
"The question is, do I need to worry in the next 10 years that the financial system in the U.S. is in jeopardy, and the answer is no," he said.
Please follow Michael Larkin on X, formerly known as Twitter, at @IBD_MLarkin for more analysis of growth stocks.
