A massive selloff in bonds. A plunge in tech stocks. The implosion of cryptocurrencies. The highest inflation in four decades.
Amid a brutal and uncertain climate, we asked six heavyweights in the world of finance to share their thoughts on the state of the markets, how they have handled this year’s carnage and what they anticipate in the future.
The market watchers disagreed on some fundamental issues. Jeremy Grantham, best known for predicting the market crashes of 2000 and 2008, gave many reasons to be pessimistic even after the initial bursting of what he called “a super bubble.” Investing pioneer Rob Arnott, the founder of Research Affiliates, agrees the market hasn’t yet hit bottom. Lloyd Blankfein, the former chief executive of Wall Street giant Goldman Sachs Group Inc., GS 1.38%increase; green up pointing triangle says things aren’t as bad as they seem.
Most do agree this wild ride isn’t going to smooth out anytime soon.
Wait for peak fear
Investors should wait until markets have hit their bottom to buy, says Mr. Arnott. And that hasn’t happened yet, in his opinion.
Buy too early, and your investments will fall further. Buy too late, and you will have missed the best opportunity to make a profit.
U.S. stocks still look expensive to Mr. Arnott, the son of a pastor who turned a love of computers, math and research into investment advisory business Research Affiliates. He is known within his industry as the “godfather of smart beta,” a reference to funds that allocate money based on factors like companies’ dividend payments, sales, or volatility.
The problem is, identifying the moment of peak fear—when investors have gotten so pessimistic there’s nowhere for prices to go but up—almost always boils down to guesswork, Mr. Arnott said.
He is convinced U.S. stocks haven’t hit their trough. Why? The Shiller price-to-earnings ratio—a measure of the market’s overall valuation named after Nobel Prize-winning Yale economist Robert Shiller—shows that equities are still relatively pricey. The S&P 500 is trading well below its peaks during the dot-com bust and post-pandemic rally but far above the range reached during the worst of the 2007-09 financial crisis. That doesn’t seem to suggest that investors have reached the point of capitulation.
“I’ve been called a permabear,” he said. “But I’m a bear on things that are expensive. I don’t want to bother buying them, even if they could go higher.
Mr. Blankfein, who steered Goldman Sachs through the brutal 2008-09 financial crisis, said the market’s outlook may not be as dire as many believe.
“The bad news is so stacked up that people are under-appreciating the fact that there are several plausible pieces of good news that could affect the market positively,” he said, citing a change in Russia’s approach to the war in Ukraine, the release of more oil by Saudi Arabia and a pause in rate hikes by the Fed. “Markets are not just the current economy, they look ahead.”
This year’s selloff has been equally punishing for many stocks, he said. “Move into those you wished you owned but were too expensive.”
Mr. Blankfein said it’s worth remembering the challenges of the moment always seem worse than those of the past, if only because the past is resolved. And history, like the markets, has cycles.
“You think things have never been scarier?” said Mr. Blankfein, who retired from Goldman in 2018. “Really? We lived through the Cuban missile crisis when we were stopping Soviet ships in international waters. These are really the most polarized times? I was around in 1968 when there were assassinations of public figures, when kids were blowing up draft centers, and the National Guard was shooting on campuses. We got through that, we’ll get through this.
“It’s never as bad as your worst fears or as good as your best hopes,” he added.
—Justin Baer
Prepare for more chaos
Volatility is here to stay. That’s the view of Paul Britton, founder of investment firm Capstone Investment Advisors and someone who bets on haywire swings across global markets.
He expects rising interest rates to keep stoking turmoil, with few corners of the markets sheltered from the pain. Even bonds, typically thought of as a safer investment than stocks, have grown more volatile.
That makes many investors’ portfolios riskier than they appear, Mr. Britton says. The yield on the 10-year Treasury note, typically thought of as ultrasafe, has recorded some of its largest one-day moves of the past decade in recent months.
Source By:- The Wall Street journal