General / Market Analysis
Fisher Investments' Founder Provides His Market Outlook for the Remainder of 2022
Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher offers his stock market outlook for the remainder of 2022. While it’s been an ugly year for stock and bond prices so far, Ken says investors should take heart in overlooked positives.
Ken mentions the second half of midterm election years—specifically Q4—have historically been positive for markets. He believes the likelihood of increased political gridlock, recovering supply chains and easing inflation could mean a better end for markets in 2022 than many think.
Markets faced myriad headwinds this year—inflation, recession fears, Fed rate-hike fears, US midterm election hyperbole, continued supply chain struggles, war in Ukraine and continued China COVID lockdowns. Ken says these factors depressed investor sentiment, but many underappreciated economic signs point to a likely market rebound ahead.
Title screen appears, “Fisher Investments' Founder Provides His Market Outlook for the Remainder of 2022.”
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ken fisher doing hand gestures time to time explaining.
Ken Fisher: You normally about this time of year. I offer a video for you on how the first half of the year's gone and a little bit about what I see ahead. I don't think you need me. I think everybody that's watching knows there's been an ugly first half of the year. I think you probably also know that I haven't anticipated this first half of 2022 being as ugly as it was. You could see ugly in so many ways, whether it's concerns about the stock market hitting bear market territory, about bonds being as negative as they've been in terms of total return, these both being as ugly a first half of the year as pretty much almost anybody can remember. Worst returns going back in the first half to 1970.
Ken Fisher: Also concerns about inflation, Ukraine war, Fed hiking rates, supply chain issues connected with aftermath of prior COVID concerns, regardless of whether they've been inside the developed world or renewed lockdowns in China that have created further production problems coming out of China. All of these features have built and contributed into this time period. I have not seen this period correctly, did not anticipate this much downside at the beginning of the year. I told you that the first half of midterm election years is traditionally overly volatile, typically sideways to slightly negative moving, followed by a stronger back half. That pattern is very consistent not perfect, but very consistent in history, this year more than most. And I think you know this, so I'm kind of telling you something you already know here. People have been more ideologically and politically polarized than decades ago, for sure, and I think more so than even two and four years ago. And depending on your ideology, you see media conveying to you things that tend to confirm your beliefs and feed your own personal confirmation bias and an awful lot of just what I would view as ugly, ugly, ugly media commentary, regardless of what your ideological views are.
Ken Fisher: So, if you're on one side, you're hearing one set of ugly, if you're on the other side, you're hearing another set of ugly. There's a certain amount of overlap. A lot of it just speaks to a world that sort of largely portrays that anybody who disagrees with you is somehow wrong and bad and that polarizes more our market sentiment views in terms of political risk. And in that first half, you saw quite a lot of effort on the part of the President Democratic Party to try to put through issues of legislation that they had not been able to put through in 2021 that they still were not able to put through in 2022. And so that would frustrate them.On the other hand, there's the ever present fear on the Republican and conservative side that those things might go through and that angst has built and contributed to negativity on both ideological sides throughout the first half. When we look at all of that I continue to be of the view oh, and of course, and I did not say this I should have the other fear that goes with all of the other fears is that we're tipping over into recession. And so, there's the bad of inflation, then there's the fear of recession, and both at the same time pulling us as if being pulled by both arms.
Ken Fisher: The reality of the world, as I see it has been that there's abundance in that also. And I should have said, I think, you know, the first quarter showed a negative GDP print, slightly negative and heavily impacted by what I would view as some technical considerations.I believe the economy is stronger than people think it is. I don't think it's terribly strong, but I think it's stronger than people think it is. And I think there's quite a lot of sign of that that is, at this point, not being seen and identified, that there's a tremendous tendency right now because sentiment is low. Sentiment, however, you measure it, is almost as low as it's ever been, if not lower than it's ever been in measured history, which is hard to explain because things aren't nearly as bad as they've been many times in our past. But sentiment is not optimistic. And we're at this point, that happens pretty commonly where anything good is seen as, yeah, but it's probably going to morph into something bad. So, when we see signs of the economy being stronger than people feared it might be, that's cast as, yeah, but that means the Fed will have to raise rates more to slow down inflation. And then when we see any other sign of improvement, let's say, on the inflation front, like the fact that commodity prices generally across the board have been falling more recently, which should be a leading indicator of improvement, inflation ahead, then you get the yeah buts but the PPI numbers don't show that, so that can't be important. The fact is, I think the back half of the year will move to be nicer. When we look at various indicators, we can see things like it has been broadly thought that Britain is the weakest link in the European Economic system, but Britain's recent GDP numbers have come in positive, not flat to negative as was expected. On the other side of the equation, we see similar strength in places like Australia. If those two were strong, America is probably stronger than current sentiment believes it to be.
Ken Fisher: The fact is we have problems with people not really wanting to work. That's a real problem. We have supply chain problems that are real problems. Inflation is absolutely more problematic than I ever envisioned it would be this year. But with time, the features that cause that probably get unwound. Inflation is almost certainly not as bad as people fear it to be moving forward because if it was, we would have seen the Long Bond price go up a lot more than it has because lenders would demand that for parting with their money. AAnd the fact that you see headline inflation numbers up here approximating 9%, 10%, 11%. Long Bond numbers down here at bouncing right around 3% currently as I speak, a little below 3%.And that gap not closing tells you that capital markets don't actually believe that longer term inflation is such a problem. And that's probably true.
Ken Fisher: Finally, I just want to say, and I believe this to be true, while historically, as I told you at the beginning of the year, the first half of midterm election years in America tend to be very volatile going nowhere fast. And this year worse than normal. Uglier than normal. The back half of the year tends to be positive, historically at a very high level. The fourth quarter in the mid 80%of history and at high numbers. Do I think that necessarily turns the year into a positive net year? I don't know. I don't have a clue. Totally possible, no certainty. But I believe we will see the impact of that. What causes the impact of that? In midterm election years you move to more relative gridlock or absolute gridlock and that is never anticipated in terms of its benefits to markets long in advance.
Ken Fisher: People on the inside of politics have long understood how this game works in terms of the outcome of elections, where the opposition party to the President's party picks up relative power in Congress and sometimes absolute power, and this time maybe absolute power. But the impact that has on quieting legislation and political risk aversion and that ideological polarization that I spoke about earlier. Calming markets as you see less legislation moving forward, creating a calmer environment for business planning, capital expenditure and personal investment, leading to a more buoyant investment world that starts to get pre priced late in the third quarter or fully in the fourth quarter and carries over into the first two quarters of the third year of the president's term is never embraced until you get just about there or maybe all the way there. So I think the back half of the year will be more pleasant than people think. I think we'll see a bottom in the markets before then. Exactly. When? I don't know. But if you want to bet on the big downturn sustaining, which is what more and more people believe will be true, and keep seeing a downward movement, I think you'll end up finding that that's wrong. I think we'll find the bottom soon. The time between going down 20% off of broad market indexes to a close and actually hitting an absolute market low, depending on whether you look at mean or median averages, is one to two and a half months, and that would all be in the third quarter of this year.
Ken Fisher: So, I'm pretty optimistic for the back half of the year. I think 2023 will be positive. You can't actually find a negative third year of a president's term until you go back to 1939as World War II was starting, and that was only negative nine tenths of 1%.The positiveness of this gridlock effect is much bigger on sentiment than people ever anticipate it will be, partly because everybody in the left thinks everybody in the right is wrong and terrible. Everybody in the right thinks everybody on the left is wrong and terrible, and neither side fully embraces that. When nobody really gets what they want, everything quiets down. So, thank you very much for listening to me, and I look forward to speaking to how this back half of the year turns out when we get to the end of the year. Thank you much.
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