Where Are Stocks, Bonds and Crypto Headed Next? Five Investors Look Into Crystal Ball

A new trading year kicked off just weeks ago. Already it bears little resemblance to the carnage of 2022.

After languishing throughout last year, growth stocks have zoomed higher. Tesla Inc. and Nvidia Corp., for example, have jumped more than 30%. The outlook for bonds is brightening after a historic rout. Even bitcoin has rallied, despite ongoing effects from the collapse of the crypto exchange FTX.

The rebound has been driven by renewed optimism about the global economic outlook. Investors have embraced signs that inflation has peaked in the U.S. and abroad. Many are hoping that next week the Federal Reserve will slow its pace of interest-rate increases yet again. China’s lifting of Covid-19 restrictions pleasantly surprised many traders who have welcomed the move as a sign that more growth is ahead.

Still, risks loom large. Many investors aren’t convinced that the rebound is sustainable. Some are worried about stretched stock valuations, or whether corporate earnings will face more pain down the road. Others are fretting that markets aren’t fully pricing in the possibility of a recession, or what might happen if the Fed continues to fight inflation longer than currently anticipated.

We asked five investors to share how they are positioning for that uncertainty and where they think markets could be headed next. Here is what they said:

‘Animal spirits’ could return

Cliff Asness, founder of AQR Capital Management, acknowledges that he wasn’t expecting the run in speculative stocks and digital currencies that has swept markets to kick off 2023.

Bitcoin prices have jumped around 40%. Some of the stocks that are the most heavily bet against on Wall Street are sitting on double-digit gains. Carvana Co. has soared nearly 64%, while MicroStrategy Inc. has surged more than 80%. Cathie Wood‘s ARK Innovation ETF has gained about 29%.

If the past few years have taught Mr. Asness anything, it is to be prepared for such run-ups to last much longer than expected. His lesson from the euphoria regarding risky trades in 2020 and 2021? Don’t count out the chance that the frenzy will return again, he said.

“It could be that there are still these crazy animal spirits out there,” Mr. Asness said.

Still, he said that hasn’t changed his conviction that cheaper stocks in the market, known as value stocks, are bound to keep soaring past their peers. There might be short spurts of outperformance for more-expensive slices of the market, as seen in January. But over the long term, he is sticking to his bet that value stocks will beat growth stocks. He is expecting a volatile, but profitable, stretch for the trade.

“I love the value trade,” Mr. Asness said. “We sing about it to our clients.”

—Gunjan Banerji

Keeping dollar’s moves in focus

For Richard Benson, co-chief investment officer of Millennium Global Investments Ltd., no single trade was more important last year than the blistering rise of the U.S. dollar.

Once a relatively placid area of markets following the 2008 financial crisis, currencies have found renewed focus from Wall Street and Main Street. Last year the dollar’s unrelenting rise dented multinational companies’ profits, exacerbated inflation for countries that import American goods and repeatedly surprised some traders who believed the greenback couldn’t keep rallying so fast.

The factors that spurred the dollar’s rise are now contributing to its fall. Ebbing inflation and expectations of slower interest-rate increases from the Fed have sent the dollar down 1.7% this year, as measured by the WSJ Dollar Index.

Mr. Benson is betting more pain for the dollar is ahead and sees the greenback weakening between 3% and 5% over the next three to six months.

“When the biggest central bank in the world is on the move, look at everything through their lens and don’t get distracted,” said Mr. Benson of the London-based currency fund manager, regarding the Fed.

This year Mr. Benson expects the dollar’s fall to ripple similarly far and wide across global economies and markets.

“I don’t see many people complaining about a weaker dollar” over the next few months, he said. “If the dollar is falling, that economic setup should also mean that tech stocks should do quite well.”

Mr. Benson said he expects the dollar’s fall to brighten the outlook for some emerging- market assets, and he is betting on China’s offshore yuan as the country’s economy reopens. He sees the euro strengthening versus the dollar if the eurozone’s economy continues to fare better than expected.

—Caitlin McCabe

Stocks still appear overvalued

Even after the S&P 500 fell 15% from its record high reached in January 2022, U.S. stocks still look expensive, said Rupal Bhansali, chief investment officer of Ariel Investments, who oversees $6.7 billion in assets.

Of course, the market doesn’t appear as frothy as it did for much of 2020 and 2021, but she said she expects a steeper correction in prices ahead.

The broad stock-market gauge recently traded at 17.9 times its projected earnings over the next 12 months, according to FactSet. That is below the high of around 24 hit in late 2020, but above the historical average over the past 20 years of 15.7, FactSet data show.

“The old habit was buy the dip,” Ms. Bhansali said. “The new habit should be sell the rip.”

One reason Ms. Bhansali said the selloff might not be over yet? The market is still underestimating the Fed.

Investors repeatedly mispriced how fast the Fed would move in 2022, wrongly expecting the central bank to ease up on its rate increases. They were caught off guard by Fed Chair Jerome Powell‘s aggressive messages on interest rates. It stoked steep selloffs in the stock market, leading to the most turbulent year since the 2008 financial crisis. Now investors are making the same mistake again, Ms. Bhansali said.

Current stock valuations don’t reflect the big shift coming in central-bank policy, which she thinks will have to be more aggressive than many expect. Though broader measures of inflation have been falling, some slices, such as services inflation, have proved stickier. Ms. Bhansali is positioning for such areas as healthcare, which she thinks would be more insulated from a recession than the rest of the market, to outperform.

“The Fed is determined to win the war since they lost the battle,” Ms. Bhansali said.

—Gunjan Banerji

A better year for bonds seen

Gone are the days when tumbling bond yields left investors with few alternatives to stocks. Finally, bonds are back, according to Niall O’Sullivan of Neuberger Berman, an investment manager overseeing about $427 billion in client assets at the end of 2022.

After a turbulent year for the fixed-income market in 2022, bonds have kicked off the new year on a more promising note. The Bloomberg U.S. Aggregate Bond Index—composed largely of U.S. Treasurys, highly rated corporate bonds and mortgage-backed securities—climbed 3% so far this year on a total return basis through Thursday’s close. That is the index’s best start to a year since it began in 1989, according to Dow Jones Market Data.

Mr. O’Sullivan, the chief investment officer of multi asset strategies for Europe, the Middle East and Africa at Neuberger Berman, said the single biggest conversation he is currently having with clients is how to increase fixed-income exposure.

“Strategically, the facts have changed. When you look at fixed income as an asset class…they’re now all providing yield, and possibly even more importantly, actual cash coupons of a meaningful size,” he said. “That is a very different world to the one we’ve been in for quite a long time.”

Mr. O’Sullivan said it is important to reconsider how much of an advantage stocks now hold over bonds, given what he believes are looming risks for the stock market. He predicts that inflation will be harder to wrangle than investors currently anticipate and that the Fed will hold its peak interest rate steady for longer than is currently expected. Even more worrying, he said, it will be harder for companies to continue passing on price increases to consumers, which means earnings could see bigger hits in the future.

“That is why we are wary on the equity side,” he said.

Among the products that Mr. O’Sullivan said he favours in the fixed-income space are higher-quality and shorter-term bonds. Still, he added, it is important for investors to find portfolio diversity outside bonds this year. For that, he said he views commodities as attractive, specifically metals such as copper, which could continue to benefit from China’s reopening.

—Caitlin McCabe

Find the fear, and find the value

Ramona Persaud, a portfolio manager at Fidelity Investments, said she can still identify bargains in a pricey market by looking in less-sanguine places. Find the fear, and find the value, she said.

“When fear really rises, you can buy some very well-run businesses,” she said.

Take Taiwan’s semiconductor companies. Concern over global trade and tensions with China have weighed on the shares of chip makers based on the island. But those fears have led many investors to overlook the competitive advantages those companies hold over rivals, she said.

“That is a good setup,” said Ms. Persaud, who considers herself a conservative value investor and manages more than $20 billion across several U.S. and Canadian funds.

The S&P 500 is trading above fair value, she said, which means “there just isn’t widespread opportunity,” and investors might be underestimating some of the risks that lie in waiting.

“That tells me the market is optimistic,” said Ms. Persaud. “That would be OK if the risks were not exogenous.”

Those challenges, whether rising interest rates and Fed policy or Russia’s war in Ukraine and concern over energy-security concerns in Europe, are complicated, and in many cases, interrelated.

It isn’t all bad news, she said. China ended its zero-Covid restrictions. A milder winter in Europe has blunted the effects of the war in Ukraine on energy prices and helped the continent sidestep recession, and inflation is slowing.

“These are reasons the market is so happy,” she said.

—Justin Baer

Five minutes doesn’t sound like much. But it’s enough time to tell whether someone really understands money or just talks about it. Because once the gloss is stripped away, what’s left is instinct. The early mistakes. The bad calls. The quiet pivots that no one brags about but shape everything that follows. Making money is one thing. Living with it, and not mishandling it, is another. Here, five executives talk about what they got wrong, what they’ve learned, and how they now actually spend, invest and think about wealth.

Andrew Raso: Founder, Online Marketing Gurus

Andrew Raso, founder of Online Marketing Gurus.

Self-made millionaire Andrew Raso grew up in an ethnic household with a father in construction. Investing was not a priority, he recalls.

The co-founder and CEO of Online Marketing Gurus, a digital marketing platform that generated more than $30 million in revenue in the 204/25 financial year, admits he’s had to learn about handling money as his wealth has grown.

“If I had my time again, I would change my spending habits and would probably be a lot more wealthy as a result,” the Sydneysider tells Kanebridge Quarterly.

Raso, in his mid-30s, says that his biggest lessons have come from his losses.

Buying the wrong property and copping the losses upon sale. Feeling FOMO when buying crypto and making a purchase that lost money.

“I’ve learned a lot from the errors that I’ve made,” he says.

Raso admits that he gets more of a thrill out of working than watching money hit his bank account.

“I’ve had the cars, I’ve had the property, I’ve had the watches. Once you’ve had them, they’re not that exciting, but the process of earning money is pretty cool.”

What he won’t forget is being $45 million in property debt a few years ago.

“I’d never want to be in that position again,” he says.

“My investing strategy is a lot safer these days. I’m very cautious. I’d prefer to invest in things that don’t take as long to be realised so my family can be financially secure.

“Once you have a house paid off and a few investments, it then becomes about enjoying your money, rather than hoarding it. Giving back gives me a much bigger kick than spending these days.”

Daniel Wessels: CEO, Jacaranda Finance

Fintech founder Daniel Wessels knows only too well that money remains a taboo topic in Australia with many people.

He points to consumer surveys that reveal people are more likely to talk about their sex life with friends than their finances.

It’s a major concern for the man who founded Jacaranda Finance in 2013, which has helped countless people lift their credit scores and get their finances back on track.

“If people aren’t learning money habits at school and they aren’t discussing it with their friends, learning new strategies and better habits is difficult,” says Wessels, who is based in Brisbane.

He wants to see more people take the time to proactively understand where and why they are spending money.

“Everyone needs to have a financial strategy and a plan to measure if it’s working,” he says.

The father of two young children admits his week can be pretty fast-paced. Pomodoro clocks, sleep optimisation techniques and saying ‘no’ keep him on task during the week.

“I used to think I was fairly decent at managing time, but the whole game changed when we had kids,” he says.

“Now, I’ve got to get out of the house at a certain time and leave the office at a certain time for daycare pickup. I’ve got to be really specific about my tasks to maximise my week.”

Before he had a family, he loved heading out to one of the trendy new restaurants popping up in Brisbane.

But that happens less these days. He’s saving to build his forever home but admits that price rises have resulted in rising costs.

“It’s such a big project with so many variables that change quickly,” he says.

These days, Wessels likes to optimise his professional and personal life. “With only a finite amount of money, time and energy, you’ve got to be really good at deciding what you want to be good at,” he says.

He calls this ruthless prioritisation. He has a very specific focus on activities that prioritise health and wealth, adding experiences into the mix more recently. This has meant the addition of micro-holidays to his annual calendar.

Wessels works with a couple of financial advisers. That said, he also does his own due diligence before agreeing to investments.

“One likes private equity investments that pay cash every month and another prefers to focus on the NASDAQ Stock Exchange for buying shares because he’s bullish about that.” he says. “They’re each experts and really good at what they do.”

Jim Penman: CEO, Jim’s Group

He may have invested a lifetime building a franchise juggernaut that is reportedly a $1 billion a year empire, but Jim Penman insists he’s a frugal guy who prefers to spend time planting a tree in his garden than contemplating his wealth.

What started out as Jim’s Mowing back in 1989 became Jim’s Group. Today, there are 5,700 franchisees across Australia and New Zealand in the business that has become ubiquitous for being the local handyman company that households could rely on.

He may have built a successful business empire, but the Melburnian insists he’s stingy when it comes to money.

“I wear my clothes even today until they wear out. I’ve always had a very lean and mean attitude. I live a simple life. My personal needs are very modest and my finances are simple,” he says. Jim reveals he’s usually in his garden these days and rarely eats out or takes holidays.

He is also running for state politics in the November Victorian election.

“I’m not particularly money focused. I could tweak the franchise contract to put more fees in and double my profitability, but that’s not my goal or my aim. To be honest, I often make decisions that go against my financial self-interest,” he says.

Jim purchased his first brand new car three years ago, opting for an electric Volvo.

“Being rich is not my aim and it never has been. People think I’m a lot richer than I am. They think I’m a billionaire, which is kind of ridiculous,” he says.

In fact, he insists he carries debt, which is common for anyone in business. “If I wanted, I could pay it off in 18 months.”

While his competitors were spending on fancy office space, Penman was running his franchise from his basement, keeping business costs low. “When I started out, I didn’t have any concept of how big this business could be. But there has never been a plan to grow franchisee numbers.

“Our attrition rate is far more important, and how to reduce complaint rates and drive more enquiries through new software.”

He believes people these days worry too much about impressing others, which leads to spending on superficial things.

“I would rather than offer people advice on how to be happy, rather than how to become rich. It’s important to have a good income so you can support yourself. But life is more about purpose.”

Jim doesn’t bother with stocks or bonds. He only invests in his own business. “My rate of return on my business is substantial. I could buy back a regional franchise when they come on the market and get a 20-25 per cent annual rate of return, plus capital gains. There’s nothing like that available in the investment space.”

Nicola Beswick: Founder, White Rabbit Advisory

Nicola Beswick, White
Rabbit Advisory founder.

A clothing allowance provided by her parents and then a part-time job during high school was the first taste of financial freedom for Nicola Beswick.

She quickly became a spender rather than saver, but she’s changed her tune over the years.

The founder of financial advice firm White Rabbit Advisory left behind a successful career in intellectual property law a year ago to become a financial adviser because she realised the potential that financial education could have on someone’s life.

Her journey began after coming across the book Rich Dad Poor Dad some years ago, which opened her eyes to the power that money could have on her life. This marked a time when she became serious about her finances.

“Financial education and investing over time can have a huge impact on a person, and that book got me thinking about money and financial education in the first place,” she says.

Nicola says years ago, her father was diagnosed with multiple sclerosis. When dealing with the devastating news and an uncertain future, her father discovered he was eligible to receive an income protection payout.

“This was the stone that rippled his pond and mine. A new complex world of finance opened up and I discovered my calling – helping people plan for a financially secure future.”

She hasn’t looked back. “Commercial law was very transactional. I don’t regret quitting at all. I’m much happier now helping people get their finances in order. Financial planning helps people change their lives. That was a really big driver for me.”

The Melburnian admits she’s learned plenty of lessons along the way as she embarks on the process of building wealth. She uses superannuation as an investment vehicle, favouring its tax advantages.

“I also built a nest egg outside of super, because you never know when the rules will change,” she says.

She prefers to set a financial goal and save up for something specific over time than rush out and make a purchase.

“It’s a really powerful thing to wait before making a purchase,” she says.

Her current financial goals involve renovating her heritage-listed home. “We will keep the façade and gut it to rebuild. That’s a major expense for us on the horizon.”

While holidays are rare, she will spend on overseas trips on occasion. “I’m terrible at taking time off. I’m always working.”

Sam Riley: CEO, Drova

Sam Riley was in his 20s when he set out to amass enough money to be able to retire by the age of 40 if he wanted to.

“The goal was always to be doing something by 40 that kept me engaged enough that I didn’t actually want to retire because I was happy,” he says.

An entrepreneur at heart, Sam started a juice and espresso bar when he was 21, which didn’t work out. His next venture was a technology business, Ansarada, an ASX-listed company he ultimately sold nearly two years ago for $250 million.

The sale set him up for life, but he’s not one to rest on his laurels, launching into the complex world of artificial ntelligence with his next technology play, a company called Drova.

The technology startup simplifies risk, compliance and resilience for small businesses. Sam believes it’s got potential to become a tech juggernaut in time.

Having early financial success has meant he has the luxury of slow mornings and working in short bursts throughout the day, problem solving, experimenting with what works and figuring out how to harness AI.

“I favour a more sustainable approach to working these days. More frequent breaks. Making sure not to deteriorate my capacity,” he says.

It was a hard slog. He admits he touched the fringes of serious burnout when he was younger, which he works hard to avoid these days.

“Every business venture has exposed a gap in my skills that I’ve worked to close. Whether that’s marketing or managing people, closing those gaps along the way is how you get more effective at generating wealth,” he says.

The secret to his success has been finding ways to bolster value in the corporate world, finding ways to bring more to the table. Sam admits he spends too much money on travel, food and niche vinyl audio equipment, like turntables. He prefers to invest in experiences rather than things.

But it can get expensive. Like a recent trip to Antarctica to stay in a lodge for a week. “The thing is I didn’t like having these experiences on my own, so I have to bring family or other people and then pay for them.”

Sam describes his investment portfolio as balanced. While he continues to invest in entrepreneurial ventures, he admits he has a safe foundational platform to his investment approach.

“Over the years, I’ve added a lot more dividend stocks and protective assets like gold and silver, and some index funds.

“When I was younger, I didn’t appreciate the value of being safe and boring in the investment world.”

He says a lot of his investments used to be leading edge and visionary. “Some of them work, and some of them don’t. I didn’t really have much balance in my portfolio. I still invest in entrepreneurial things, but am much more conscious of taking a more even-handed approach,” he says.

his article appeared in the Winter 26 issue of Kanebridge Quarterly, which you can buy here.