US debt, the yen carry trade, global warming, labour interruptions, US Social Security’s potential future insolvency, Big Tech antitrust battles, declining birth rates – what do they all have in common? That they can’t have much real impact on stocks.
Yes, you read that right! Stocks are neither myopic nor far-sighted. They look about three to 30 months ahead – ignoring most super-short-term chatter and all ultra-long-term conjecture. Let me show you.
Financial commentary often amounts to mixes of very near-term events. Or they feature far-flung far-future speculation … especially if it involves doom and gloom or hopes of huge riches. None of this directly helps navigate capital markets.
Markets care little about what already happened, happens tomorrow – even less about what probably happens a decade hence.
Consider recent headlines: Yen carry trade talk. Earnings reports. Inflation numbers. US Federal Reserve blabber. Daily dissection of market wiggles. Is all that interesting? Maybe to you. Or me. But rarely to stocks. Why?
Consider: The stock market is a marvellous pricing mechanism – its basic job. It incorporates all publicly available data, opinions and forecasts into a current single price – near-instantaneously!
Yes, short-term prices can swing sharply. But such noise usually fades fast into prices far more accurately than you, I or anyone could come up with alone.
Also, much of what you read or hear isn’t really new. Daily stories often focus on economic or earnings data. That reflects the recent past – backward-looking realities which stocks largely and mostly already know and pre-priced.
How results compare to expectations may swing stocks briefly, but lasting effects are rare. Perhaps you can glean something from diving into results, trends or management commentary. But doing so ignores that stock prices already did that for you better than anyone can consistently.
Don’t fear the far future, either – at least anything further than about 30 months away. Stocks don’t! Why? Because further out, the future gets truly impossible to predict. Stocks only deal with that when it gets closer.
Take often-cited US Congressional Budget Office estimates. In 2011, the CBO projected 10-year Treasury yields would average 4.8 per cent over the 2011-2021 period, with the US dropping $940 billion on annual interest payments by 2021.
The reality? The 10-year yields averaged just 2.1 per cent, with 2021’s net interest outlays totalling about $350 billion. Whoops!
Or remember peak oil? Early this century, most “experts” posited conventional oil production had already peaked. Then, with a new technology fracking boom no one foresaw, America gushed crude.
Focus has since shifted to peak oil demand. The International Energy Agency claims it will come in 2029. Goldman Sachs says 2034. Exxon expects constant oil demand through 2050.
Even if one of them is right, oil demand won’t vanish thereafter. Certainly not in the next three to 30 months. Ignore it all. Stocks will.
Ditto for demographics, climate change and the dollar’s reserve currency status. I am not saying all these aren’t important … sociologically. Or that they can’t impact stocks someday. But in the next approximately three to 30 months? Nope!
Climate change and demographic shifts play out over decades, not months or years. Global de-dollarisation? This isn’t a real negative of import, given most countries are increasing dollar reliance.
China’s yuan – often feared as the buck’s replacement – accounted for a puny 2.3 per cent of global central bank reserves through 2023, versus the greenback’s 58.4 per cent. If that ever changes markedly, it won’t happen soon.
Even hullabaloo around Big Tech’s government battles is ultra-long term. August’s Google antitrust decision was four years in the making – and far from over. Appeals still loom for years!
Predictions on how these events will play out rest on current information. In the years or decades it takes for them to play out, our world will change in unimaginable ways.
Predictions’ underlying past assumptions get whacked, almost always. Ultra-long-term forecasts flop. Stocks never bother with them.
How does the outlook for that three-to-30-month sweet spot look now? Stocks’ swift rebound from mid-summer’s swoon tells you it is good for the economy when so many fear recession. And fear is bullish.
Stealth risks I said to monitor in January haven’t erupted. Hooray! Inflation has cooled, supply chain snarls are long gone. US lending is growing moderately. America’s money supply’s boom-turned-bust “contraction” stabilised smoothly.
If 2025 doesn’t bring big negatives, ones that haven’t been foreseen – and hence stocks haven’t pre-priced already – stocks should keep faring moderately well.
So, the next time you hear anyone fret something next month or 20 years distant, tell them to refocus – like stocks always do.
Ken Fisher is the founder, executive chairman and co-chief investment officer of Fisher Investments, a global investment adviser with $280 billion of assets under management
