Volatility Returns

Uncertainty

This year has started off with news headlines of upcoming interest rate hikes, high rates of inflation and potential conflict involving Russia and Ukraine. Often the stock markets react with volatility to the uncertainties of these headlines. And we have seen increased stock market volatility so far this year. In January, the difference between some daily highs and lows have been as high as 5%.

The response of the financial media outlets is to feature analysts, fund managers and commentators willing to make stock market and economic predictions with all this uncertainty, many of whom are making negative, sometimes very dire, forecasts for stocks and investors. One in particular, Jeremy Grantham, has been on many of the financial news outlets predicting the “popping” of the stock market “super bubble.” Mr. Grantham was originally noted for predicting the bear market of 2001 and the housing crisis of 2008. What is left out of many of these conversations is all of the other stock market crashes and declines he has called over the years that didn’t happen. In a November 2010 interview, he predicted sharp declines for 2011 and 2012. Since that interview, the S&P 500 has risen 348%. He has also called for stock market declines in 2018, 2020, and 2021. He has called many declines so far, and eventually he may be right. But in the meantime, the S&P 500 has risen 75% since the beginning of 2018, 39% since 2020, and 17.5% since 2021. This is not meant to single out Mr. Grantham for his stock predictions because he is just one of many to do so.

At Prato Capital, we have written many times about just how wrong stock predictions turn out. Many will offer an opinion, but the reality is no one can predict what will happen next week, next month or next year.

Our last blog, The Noise of 2021, discusses many of the headlines from last year and how the media creates anxiety for those that watch. Many of these headlines are very important and newsworthy. But, for any long- term investor with a well thought out investment plan, they would be best served separating the headlines from their investments.

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