The Wall Street Journal reached out the 6 investing pros for their take on where the market is headed, and while they all held different opinions they could all agree on one thing: the market rollercoaster ride isn’t over yet.
Rob Arnott of Research Affiliates: The market hasn’t hit bottom yet, and investors should wait until it does, Arnott told The Journal. U.S. stocks are still too pricey in his estimation, and if investors buy now before the bottom, their investment will decline even more. But if they buy after the bottom, they’ll miss out on the best opportunity for returns. Of course, getting that timing right is a challenge, but Arnott points to the Shiller price-to-earning ratios, which shows that equities are still expensive and the S&P 500, while trading below its recent peaks, is still well above the low it hit during the 2007-09 financial crisis. That, Arnott says, would indicate that investors have not yet reached the point of capitulation.
Lloyd Blankfein, former CEO of Goldman Sachs: Amidst all the bad news that are making the news, there are actually several pieces of good news that show things aren’t as dire as they might seem, Blankfein believes. That good news include the shift in Russia’s war strategy in Ukraine, Saudi Arabia releasing more oil, and the Fed taking a temporary pause in raising interest rates. And while the selloff has hit many stocks hard, that opens up opportunities for investors to snap up stocks that were previously too expensive. Blankfein also reminded The Journal that markets are cyclical, and while challenges seem insurmountable in the moment, history shows that eventually the market will surmount them.
Paul Britton of Capstone Investment Advisors: Prepare for persistent volatility, as interest rates will continue to roil the markets. That includes the bond market, generally thought to be a safe haven, and investors who have a lot of bond exposure in their portfolios should take precautions against the risk that could pose. Look into alternatives beyond stocks and bonds, Britton advises, because the strategies that have been reliable over the last 15 years are unlikely to work in this turbulent time. He highlighted an approach called the “dispersion strategy,” where options are utilize to bet on how closely stocks will rise and fall together. “This is one of those moments in time where…it’s crucial to be brave in your decision making,” Britton told The Journal.
Nancy Davis of Quadratic Capital Management LLC: Investors shouldn’t be so quick to assume that inflation is going to dissipate any time soon. While the Fed abandoned the notion of inflation being “transitory,” the market is still factoring in that possibility, and bond market investors may be overly confident that the central bank’s rate increases will lower inflation on the near horizon. To shore up her investments, she’s bought up inflation-protected bonds and options that are connected to interest rates as hedges in the $1.1 billion Quadratic Interest Rate Volatility and Inflation Hedge ETF, which she manages.
Jeremy Grantham, co-founder of Grantham Mayo Van Otterloo & Co.: Grantham, who is well-known for identifying bubbles before they burst such as the dot-com bust in 2000 and the housing market crash in 2008, has been outspoken about his belief that the market was in a “super bubble” that has yet to truly burst. Valuations are still high, despite rampant inflation and an economic slowdown. Grantham suggests that average investors hold cash and actually argues against the mantra of not trying to time the market, since it could very likely take years for the market to recover after the inevitable bubble burst.
Rick Rieder of BlackRock: After the worst year on record, bond markets will rebound, says Rieder. Opportunities will be plentiful in 2023, he believes, as higher interest rates will finally start slowing down the economy and the Fed may pull back on raising rates further. That will lower bond prices, which will produce higher yields, resulting in much more positive forward-looking returns. Rieder doesn’t expect prices to continue to fall as much as they have been, and told The Journal that investors should “feel pretty good about buying literally triple-A assets at these sort of yields.”