The CFA society of Mississippi hosted its 18th Annual Forecast Dinner at the Country Club of Jackson on February 24, 2022. After postponing the event last year due to Covid restrictions, we were anxious to hear what our experts had to say! As usual, the event did not disappoint. Financial advisors, clients, faculty, and students had the opportunity to reconnect with old friends and meet new ones over a delicious meal served with festive libations. The highlight of the evening was a truly compelling discussion about what our panelists predict for the behavior of the financial markets in the upcoming months.
Going into the event, there were a number of things on our minds. We were awakened that morning to news of Russia invading Ukraine. With inflation fears looming and the after-effects of Covid still taking center state, we were hoping for some reassuring words from our panelists.
Speakers were Michael Scanlon, Managing Director and Portfolio Manager at Manulife Investment Management; Mebane Faber, Co-Founder and CIO of Cambria Investment Management; and Kenneth Woods, Chairman of Asset Preservation Advisors. Dr. Eduardo Marcelo, Professor of Finance and Dean of the School of Business at Mississippi College, moderated the event.
Michael Scanlon's overall message: expect more muted absolute returns and a lot more volatility. Michael manages a balanced 60:40 stock/bond portfolio and believes that this balanced approach is still appropriate for the majority of investors. He also believes that US companies are still attractive, giving particular mention to the healthcare and tech sectors.
Mebane Faber seems to favor holding a market-weighted portfolio that tracks the entire world in proportion to the underlying assets' market capitalizations. As the US is currently about 60% of market cap, he suggests that many investors increase their foreign holdings. Relative to foreign markets, the US has done well lately. Over the long term, however, the odds that the US will outperform the rest of the world are about 50:50.
Because Kenneth Woods is a fixed-income specialist, his focus was more on bonds. He noted that investors should be in shorter term bonds right now as we are anticipating the Fed to raise rates throughout this year. He spoke of the possibility for an inverted yield curve - an indicator that recession could be looming - but also pointed out that the demand for long term US bonds is still healthy.
All three panelists named inflation as a large concern going forward, though the "significant inflation" that's "here to stay" is referring to inflation in the range of 3-4% - a much more palatable rate than what we've seen in the last few months. The panelists also touched on current geopolitical events, noting that international shocks (like the Russian invasion of Ukraine) will inevitably shake the markets in the shorter term. Over the longer term, however, market prices will reflect the health of the companies and the economies that they represent.
The most interesting takeaway for me was how different each of the panelists' predictions were for the behavior of the markets going forward. When asked where the S&P 500 will be one year from now, their answers ranged 36%! Nancy reminded us that it is precisely when prognosticators all fall in line with their predictions that markets are at greatest risk. Opinions that range broadly, rather, are indicative of a healthy market environment - and diverge they did!
I thought that the panelists were well-chosen and was delighted that the conversation remained accessible throughout. I strongly encourage each of you to listen to the program - we'd love to hear your thoughts!