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Thomas Peterffy has some advice for bullish investors and traders amid stomach-churning volatility and an overall ugly tilt lower for equities: Focus on the long game.
The founder and chairman of Interactive Brokers Group
IBKR,
says he sees a lot of “difficult issues” that the market needs to contend with on the “immediate horizon,” and cautions that anyone expecting stability in financial assets in the immediate term, while the world is in the throes of soaring inflation and bloody clashes in Eastern Europe, could be in for grave disappointment.
Read: How to invest as inflation, higher interest rates and war roil markets
“Inflation is raging all over the world, interest rates must raise…and that will deliver a shock and the fallout will be negative,” explained Peterffy in a Monday afternoon interview. “All this is not good for the markets,” he said, adding metaphorically:
“ ‘We’re all dancing on the Titanic.’”
He observed that the increased geopolitical tension between Russia and the U.S. over Moscow’s invasion of Ukraine represents a source of monolithic uncertainty for markets, even if inflation abates.
Peterffy, who is longer-term upbeat on stocks, said Russia’s siege on Ukraine marks a “serious worry,” and a headwind for risk-asset appreciation.
That conflict, which began Feb. 24, marks the most significant military confrontation on European soil since World War II and anxieties that Russia leader Vladimir Putin could resort to nuclear weapons is a genuine source of consternation.
Read: Fed funds futures traders see 94% likelihood of 75 basis point Fed hike in June, CME data shows
On Monday, Russia’s foreign minister, Sergei Lavrov, in an interview aired on Russian state television, warned that the risk of a third world war was real and said the risk that nuclear weapons would be deployed shouldn’t be underestimated.
“This is our key position on which we base everything. The risks now are considerable,” Lavrov said.
“I would not want to elevate those risks artificially,” Lavrov continued. “Many would like that. The danger is serious, real. And we must not underestimate it.”
His comments followed remarks made days earlier rejecting suggestions that Russia would eventually turn to nuclear weapons in its military campaign in Ukraine.
The Hungarian-born Peterffy said he is watching closely the geopolitical landscape as Russia’s war on Ukraine unfolds, with a particular emphasis on how it could reshape the global order.
“Where will China be?” the Interactive Brokers founder asked. “Will the West push Russia firmly into China’s arms?” If so, he said, that is “not constructive for markets.”
For its part, the Interactive Brokers trading platform saw trading volume slip, along with profit and revenue, in the most recent quarter, as securities lending activity ebbed.
Shares of Interactive are down 21% so far in 2022, compared with a 7.4% year-to-date drop for the Dow Jones Industrial Average
DJIA,
an 11% decline for the S&P 500
SPX,
and a 19% slump for the Nasdaq Composite Index
COMP,
over the period.
Peterffy said markets will eventually turn higher when investors realize that, despite rising inflation, stocks are the only game in town. But he’s not clear on when that shift starts. “In the long run, due to inflation, the stock market will start going up again, at least in nominal terms,” he said.
Read on: U.S. stocks ended a Manic Monday in the green — but intraday bounces like this aren’t bullish
Check out: What’s next for the stock market as investors grapple with Fed near ‘peak hawkishness’
