A multi-trillion-dollar bull market is coming for assets that benefit from higher inflation, top macro strategist says

• Trillions of dollars will flow out of growth stocks over the next decade, Larry McDonald predicted.
• That's because money is heading into "inflation beneficiaries," or assets that rise if inflation stays high.
• That could create a bull market in assets like gold, aluminum, and energy, he predicted in a recent interview.

There's an enormous bull market coming for assets that will benefit from stubbornly high inflation, according to top strategist Larry McDonald.

The "Bear Traps Report" author and former head of US macro strategy at Société Générale cast a warning over high prices in the economy, predicting that inflation would remain consistently above the Fed's 2% target for years to come. Prices will likely range between 3%-4% over the next decade, he predicted in a recent interview on Blockwork's Forward Guidance podcast.

"You've got all these sources of sustained inflation coming at us," McDonald said, pointing to price pressures stemming from reshoring, government stimulus, and a strong labor market.

Those pressures are exacerbated by the fact that geopolitical conflict is on the rise. War itself is inflationary, McDonald said, pointing to the stagflationary crisis in the 70s that coincided with the Vietnam War. 

"So we're coming into this more sustained inflationary regime," he warned.

But that could actually be good news for "inflation beneficiaries" — or areas of the market that will actually soar as prices remain elevated. Those beneficiaries include assets like nickel, aluminum, uranium, copper, gold, oil, and gas, McDonald said, estimating that the energy grid alone was likely worth around $2 trillion.

The shift will pull a tremendous amount of money from popular growth stocks, like the Magnificent Seven, to hard assets and commodities, he added. Some of those assets are already seeing an uptick in interest, with gold prices surging to a record high this week. 

"We're talking about a multi-trillion dollar migration of capital and nobody's prepared for it," McDonald said.

Investors, though, are largely expecting inflation to return to back to its long-run target over the next year. 1-year inflation expectations dropped to 2.07% in March, according to the Federal Reserve Bank of Cleveland. Prices have already cooled dramatically from their highs of 2022, with consumer prices rising just 3.2% in February.

McDonald is among Wall Street's most bearish prognosticators at the moment, repeatedly sounding the alarm on stocks and the path of inflation. In March, he predicted the stock market could crash as much as 30% over the next two months, thanks to the impact of higher interest rates on the economy. He made the same prediction in 2023, the year stocks actually soared 25% higher.