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Dealing with Volatility: What You Need to Know Now

Timely insights to help you manage risk when markets shift


December 5, 2018

Why the Market Is Still Volatile & How the Fed Could Help

THE DOW’S DECLINE OF NEARLY 800 POINTS TUESDAY signaled ongoing fears of slower economic growth, with volatility likely to continue into the new year, says Chris Hyzy, Chief Investment Officer for Merrill Lynch and U.S. Trust. “Housing weakness, wider credit spreads, and an inversion at a few points on the yield curve are all contributing to higher volatility and lower prices,” he notes.

Credit spreads refer to the difference in return, or yield, between U.S. Treasury bonds and higher-risk corporate bonds of the same duration, Hyzy explains. The yield curve reflects the difference in return rates between short-term and long-term government bonds. Widening spreads and yield curve inversions (when yields for short-term bonds become higher than those for long-term bonds) both are seen as potential signs of a weakening economy.

"The Federal Reserve could help stabilize markets by signaling that interest rates are at an appropriate level, but that isn’t likely until next year." —Chris Hyzy, Chief Investment Officer for Merrill Lynch and U.S. Trust

“The Federal Reserve could help stabilize markets by signaling that interest rates are at an appropriate level,” Hyzy adds, “but that isn’t likely until next year.” Also needed: greater evidence that the U.S. and China are serious about resolving their trade differences. “Until we get confirmation in these two areas, market activity is likely to remain choppy and directionless,” says Hyzy.

For a closer look at the underlying causes of market volatility and what steps investors can consider in response, listen to the latest episode of The Merrill Lynch Perspectives Podcast, Bulls, Bears and Volatility, featuring Chris Hyzy, along with Candace Browning, Head of BofA Merrill Lynch Global Research, and Michael Hartnett, Chief Investment Strategist, BofA Merrill Lynch Global Research.

Tune in to “Bulls, Bears and Volatility” here, and check out other episodes of The Merrill Lynch Perspectives Podcast, also available by subscription on iTunes, Google Play and Spotify.

Investing involves risk, including the possible loss of principal.
Past performance is no guarantee of future results.

Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.
Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.
Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yields and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice versa.
International investing presents certain risks not associated with investing solely in the U.S. These include, for instance, risks related to fluctuations in the value of the U.S. dollar relative to the value of other currencies, custody arrangements made for a fund’s foreign holdings, political risks, differences in accounting procedures and the lesser degree of public information required to be provided by non-U.S. companies.
Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility.

 

 

November 26, 2018

From the Federal Reserve to Brexit: What’s Behind the Volatility, and What Can Investors Do?

IT’S BEEN A LONG AUTUMN FOR THE MARKETS. Each new day of volatility feels like a freshly unsettling event. But from the recent ups and downs, some clear patterns and messages are emerging, the Chief Investment Office maintains in its new Investment Insights report, “The Fed Holds the Cards.

How did we reach this point, and what might the future bring?
As the report’s title indicates, one major concern for investors is whether the Federal Reserve’s planned series of interest rate increases in 2019, after years of record-low rates and low inflation, could slow economic growth. “If a slowdown in growth becomes too pronounced, a pause in the Fed’s rate hike plans could help stabilize investor fears,” says Chris Hyzy, Chief Investment Officer for Merrill Lynch and U.S. Trust. Yet there are other prominent concerns as well, including Italy’s current budget battle with the European Commission; Brexit; uncertainty about oil prices; and rising U.S.-China trade and tariff tension.

Resist the temptation to “time” markets by buying and selling in anticipation of short-term changes. “This is extremely difficult to do.” —Chris Hyzy, Chief Investment Officer for Merrill Lynch and U.S. Trust

“This extended volatility isn’t the result of any single factor, but a powerful array of global forces,” Hyzy says. “A short while ago, people were concerned about the economy overheating. Now they’re more concerned about an economic hard landing.” Those fears may be overstated, Hyzy believes. A moderate cooling down would represent “a return to normalcy” after years of unusually low growth, followed more recently by an economic surge. Even as the rate of growth slows, he adds, “we continue to believe that in 2019 the U.S. economy will grow at approximately 2.5%, with corporate earnings around 5%.”

What can investors do?
During times of volatility, Hyzy advises investors to resist the temptation to “time” markets by buying and selling in anticipation of short-term changes. “Market timing requires making two decisions—when to sell and when to buy back in—at exactly the right moments,” he says. “This is extremely difficult to do.”

Instead, he suggests a more patient, strategic approach based on these action points:

  • Stay diversified across multiple asset classes, and recognize that higher volatility demands discipline. Rebalance your portfolio as conditions change, to be sure your original plan is in place.
  • Emphasize quality across your portfolio, and include stocks of large U.S. corporations with healthy balance sheets as well as investments offering dividend growth.
  • Don’t abandon international investments. They can offer attractive valuations and other benefits for patient investors.
  • Look at ways to generate income, including cash, short-term bonds, and stocks with the potential for dividend growth.

Now may be a good time to speak with your financial advisor about ways to prepare your portfolio for the rest of the year and 2019.

For a deeper look into the current market situation and the long-term outlook for 2019, read the Chief Investment Office Investment Insights report, “The Fed Holds the Cards.

Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.
Past performance is no guarantee of future results.

Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.
International investing presents certain risks not associated with investing solely in the U.S. These include, for instance, risks related to fluctuations in the value of the U.S. dollar relative to the value of other currencies, custody arrangements made for a fund’s foreign holdings, political risks, differences in accounting procedures and the lesser degree of public information required to be provided by non-U.S. companies.

 

 

November 21, 2018

Continued Volatility—and What Might Help Turn Things Around

THE STOCK MARKET CONTINUED TO SLIDE THIS WEEK, increasing the likelihood that market uncertainties will remain as we head into December, says Chris Hyzy, Chief Investment Officer for Merrill Lynch and U.S. Trust. Despite higher-than-expected corporate earnings during the third quarter of 2018, “concerns over economic growth for 2019 continue,” Hyzy says. “Higher short-term interest rates, a widening in credit spreads, and continued trade and tariff sparring between the U.S. and China have all played a part in the recent declines.”

As with the market volatility earlier this fall, the steepest drops have been among high-growth stocks, and that weakness has affected the broader stock indices, according to the most recent “Capital Market Outlook” from the Chief Investment Office. Two actions could help investors to regain confidence in economic growth prospects for 2019, Hyzy believes.

  • First, the Federal Reserve could soften its stance on planned interest rate increases for the year ahead. “The Fed doesn’t necessarily need to cut rates at the next meeting but a pause is needed, in our view. An adjustment to their communication would help ease any concerns about potential policy mistakes,” he says.
  • The second imperative is an easing of trade tensions between China and the United States, Hyzy adds. “We recognize that a long-term deal is unrealistic, but even a short-term ‘bridge’ agreement on tariffs and trade would significantly help investor sentiment.”

“We do not expect an economic hard landing next year, but the Fed needs to let the economy absorb the hikes already in the system.” —Chris Hyzy, Chief Investment Officer for Merrill Lynch and U.S. Trust

Amid the ongoing volatility, investors should remain cautious in their outlook for 2019, Hyzy says. “We do not expect an economic hard landing next year, but the Fed needs to let the economy absorb the hikes already in the system,” he adds. Once the markets work through the current phase of weakness, investor confidence and equity returns for 2019 could rebound to a level on par with corporate earnings growth.

Learn more about what’s behind the latest volatility, and what forces could restore investor confidence in the latest “Capital Market Outlook” from the Chief Investment Office.

Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.
Past performance is no guarantee of future results.

Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.

 

 

October 31, 2018

Volatility, the Economy and What to Do Next: Answers to Your Questions

The opinions are those of the author(s) and subject to change.

THE BROADER MARKET, AS MEASURED BY THE S&P 500, has fallen 8.8 percent for the month of October, to date, dipping into correction territory briefly on Friday, October 26th. And three-quarters of the stocks in the S&P 500 have corrected at least ten percent.

What’s behind the current volatility, and when might we see a turnaround? What does the volatility say about the U.S. economy, and what should investors do now? In the October “Investment Insights” report, “The Digest for a Turnaround,” Chris Hyzy, Chief Investment Officer for Merrill Lynch and U.S. Trust, discusses these pressing issues and his underlying confidence in the markets and the economy. You’ll find an overview below.

Q: What caused this latest market correction?
A:
In early October, Federal Reserve Chairman Jerome Powell signaled the potential for higher interest rates, and Vice President Mike Pence, in a separate speech, warned of rising trade tensions with China. Concerns about global growth, dollar strength, Italy’s budget battles and other factors have added to volatility and fears that the current economic growth cycle is over. And technical selling, which happens automatically when the markets reach certain levels, has accelerated the correction.

Q: Why are you still positive on the U.S. economy and equities?
A:
Despite these risks, the economy is strong. While some see weakness in the housing and auto sectors as signs that the U.S. economy is about to roll over, we see this more as a cyclical pause in these industries, both of which should remain attractive for years to come. We do believe U.S. economic growth will slow in 2019 but will still remain above-trend at a healthy rate around 2.6 percent or better for the full year.

Q: What should power the U.S. economy next year?
A:
Spending and confidence remain high, and with more job openings than available workers, we don’t see that changing. Small businesses, which drive job growth and the economy, have remained confident, and in corporate America we expect increases in productivity and profits. While the rate of earnings growth will slow from 2018’s 20 percent, we expect S&P 500 earnings will rise by a still-healthy 6-7 percent in 2019.

Q: What are the main risks to the economy and the markets?
A:
Geopolitical risks include recent events in Saudi Arabia, a potential power shift in Germany, and Italy’s budget battle with the EU. In the U.S., the Federal Reserve seems bent on pushing rates more than the market expects in 2019 (three hikes versus two expected), and trade issues with China, and the midterm elections add to the uncertainties. While these will need to be constantly assessed in the coming weeks and months, we do not expect them to alter the growth outlook or roll the economy into a hard landing.

Q: What should investors consider?
A:
We believe investors should consider diversifying stock portfolios and adding shorter-duration bonds for income and the potential for volatility protection. We favor active rather than passive management strategies and high-quality U.S. stocks with strong balance sheets.

When the current volatility ends, we see long-term growth opportunities in U.S. Technology and Healthcare stocks and Emerging Markets, as well as U.S. Financials (which have over-corrected, in our view) and Industrials. While value-oriented stocks, which trailed growth in recent months, have been catching up recently, we caution against switching completely from one style to the next. We prefer a diversified mix with a slight preference toward value.

Most important is not to panic. Instead of trying to predict market bottoms, we recommend that investors focus on the fundamentals and have a strategy ready as markets begin to stabilize. We are staying the course.

Go deeper on the causes of the current volatility and what to expect next in “The Digest for a Turnaround,” the latest “Investment Insights” from the Chief Investment Office.

Investing involves risk, including the possible loss of principal.
Past performance is no guarantee of future results.

Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.
Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.
Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.
Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yields and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice versa.

 

 

October 25, 2018

More Volatility—But Stabilization Is Around the Corner

THE MARKETS HAVE EXPERIENCED FURTHER DECLINES this week, driven by concerns over growth and technical selling—or, selling triggered when markets reach certain levels. Growth and momentum areas such as Technology and Industrials have led the decline, along with economically sensitive or housing-related areas such as Financials.

“We see this most recent selling as a re-pricing of risk and valuation. This is a time to let the excesses from the high valuation areas settle down, have a plan ready, and then begin to invest in high quality areas that corrected too far,” says Chris Hyzy, Chief Investment Officer for Merrill Lynch and U.S. Trust. S&P 500 price-to-earnings expectations for the next 12 months have corrected from approximately 19 times to about 15 times, he notes. And while U.S. equity markets are about 10% below their all-time highs from late September, valuation has corrected more than 20%.

“We believe we are in the final stages of this downdraft. While higher levels of volatility are likely to continue through the current earnings season, positive announcements in the next round of earnings are likely to help stabilize the correction and re-establish a positive trend to close out the year.” —Chris Hyzy, Chief Investment Officer for Merrill Lynch and U.S. Trust

“We believe we are in the final stages of this downdraft,” Hyzy says. “While higher levels of volatility are likely to continue through the current earnings season, we expect positive announcements in the next round of earnings, including from large-cap, bell-weather companies. These announcements are likely to help stabilize the correction and re-establish a positive trend to close out the year,” he adds.

“We expect that corporate stock-buyback programs, which pick up speed when earnings seasons close, will lend additional stability,” Hyzy notes. And the economy still offers many reasons for encouragement, including positive data on jobs, consumer spending, capital expenditures growth and inflation, and calmness in the U.S. dollar. Another positive sign: As growth investments have declined, value areas are closing the performance gap to more sustainable levels. Hyzy says, “All of these factors should help improve investor confidence in the coming weeks.”

If you are concerned with the recent volatility or are wondering how to respond, speak with your advisor about the best steps for your situation.

Investing involves risk, including the possible loss of principal.
Past performance is no guarantee of future results.

Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.
Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.
Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.

 

 

October 19, 2018

The Market Correction Continues—and That’s Normal

“THURSDAY’S MARKET DROP, following last week’s sharp volatility, is part of a rolling correction rather than a surprising new development,” says Chris Hyzy, Chief Investment Officer for Merrill Lynch and U.S. Trust. When markets pull back as quickly as they did last week, it takes time for internal market measurements, such as trading volume and breadth and the number of stocks in correction, to stabilize, he explains. “We see this as a relatively normal ‘re-test’ of key technical levels” rather than a fresh round of instability caused—as some observers suggest—by developments in Saudi Arabia or the Italian budget impasse.

“Markets are rotating away from high-growth, high-momentum segments toward more defensive and value-oriented areas that have significantly underperformed in recent times,” says Hyzy. “It’s part of a broader shift from a low-growth, low-yield, low-volatility environment to a period of higher growth, higher yields and more normal volatility.”

“Markets are rotating away from high-growth, high-momentum segments toward more defensive and value-oriented areas that have significantly underperformed in recent times.” —Chris Hyzy, Chief Investment Officer for Merrill Lynch and U.S. Trust

As this transition unfolds, investors can expect the portfolio rotation to continue, not just in equities but in fixed income. Capital is moving down the curve as investors move away from high-duration bonds, seeking those with yields rivaling equity dividends. “Because earnings growth and other fundamentals remain strong,” says Hyzy, “we believe investor portfolios should focus on long-term equity holdings and bonds with a shorter duration.” This approach can create a portfolio “barbell” designed to help protect against large drawdowns, provide potential cash flow, and enable investors to participate in the eventual resumption of the bull-cycle.

Investing involves risk, including the possible loss of principal.
Past performance is no guarantee of future results.

Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.
Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.
Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.
Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yields and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice versa.

 

 

October 12, 2018

A Deeper Look at Recent Market Volatility

DESPITE A VERY DIFFICULT PERIOD for markets and investors, economic fundamentals remain strong and there’s little reason to believe the long bull market in stocks is over, says Chief Investment Officer Chris Hyzy. With a couple of days’ perspective (and with markets showing some signs of recovery), Hyzy offers an in-depth look at what’s really driving the volatility.

In an “Investment Insights” from the Chief Investment Office, Eyes Wide Open—Maintaining a Longer Term Perspective, he cites a combination of forces, led by concerns that higher interest rates might create slower economic growth. At a time when U.S. technology and growth stocks, in particular, have outpaced other parts of the market, many investors have rushed to sell equities to reduce risk in their portfolios. Technical selling—or selling triggered when markets reach certain levels—caused some domino effects.

“While it’s important to monitor these continuing developments, stocks are still expected to outperform bonds over the long term.”

What investors can do: Although future equity returns may be lower than they have been recently, once the volatility subsides, you might consider using the market’s downturn to add to your portfolio at attractive prices, Hyzy says. While it’s important to monitor these continuing developments, stocks are still expected to outperform bonds over the long term.

Before making any decisions, be sure to speak with your advisor about what steps might be best for your financial strategy.

Read the CIO team’s “Eyes Wide Open—Maintaining a Longer Term Perspective ” for more insights into the events of the past week and what’s ahead for the markets and investors.

Investing involves risk, including the possible loss of principal.
Past performance is no guarantee of future results.

Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.
Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.
Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.
Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yields and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice versa.

 

 

October 11, 2018

The Latest Volatility: What You Need to Know

So, what just happened?
Wednesday, the Dow fell 831 points and the S&P 500 declined for the fifth day in a row, the first time that has happened since November 2016. The Nasdaq, after leading the market the past few years, is having its worst month since January 2016. This volatility represents a sharp rotation away from high-growth, high-momentum, highly valued parts of the market and toward cash, fixed-income and defensive equity sectors.

Here’s our take on what this means.
“All of this has led to fears that the extended bull market may be at an end. We believe those fears, while understandable, are misplaced,” says Chief Investment Officer Chris Hyzy. “As unsettling as they seem, market sell-offs are not abnormal. In fact, typical years include multiple drawdowns of 5% or more.” U.S. equities have outperformed the rest of the world recently, and technology and high-growth stocks have outperformed other sectors. “These imbalances had become too large and needed some correction,” notes Hyzy. “This is healthy.”

U.S. equities have outperformed the rest of the world recently, and technology and high-growth stocks have outperformed other sectors. “These imbalances had become too large and needed some correction. This is healthy.” —Chris Hyzy, Chief Investment Officer

“We believe this latest market volatility is being driven by four primary factors,” says Hyzy. “First is concern over a continued rise in interest rates. For example, 2-year Treasury yields hit 2.88%, the highest level since 2008. Second is oil prices heading sharply higher, possibly toward $100 per barrel. Third is slowing U.S. earnings growth. And, fourth, is concern over the ongoing trade skirmish with China and fears of a trade ‘Cold War.’”

Each has contributed to the recent market weakness. “That said, we feel it is too early to call an end to the extended bull market,” says Hyzy. “U.S. economic growth remains strong relative to the rest of the world and in our opinion will not slow down to the extent that some observers predict.”

What should investors do right now?
“Episodes of market weakness such as we’ve seen recently should be viewed as opportunities to consider increasing exposure to high-quality stocks while rebalancing overall portfolios,” says Hyzy. “We recommend broad diversification to help protect against sharp drops in concentrated parts of the market, whether particular regions, market capitalizations, styles or sectors. That’s why our equity allocations are highly diversified.

“We expect the next few years of this bull market to produce annual equity returns of about 6% or 7%—down from the almost 15% annual gains since 2009, but not yet signaling the end of a decade of rising markets,” says Hyzy.

For more insights, read “A Sharp Rotational Pull—But Not the End,” from the Chief Investment Office.

All sector recommendations must be considered in the context of an individual investor's goals, time horizon and risk tolerance. Not all recommendations will be suitable for all investors.
Investments focused in a certain industry may pose additional risks due to lack of diversification, industry volatility, economic turmoil, susceptibility to economic, political or regulatory risks and other sector concentration risks.
Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.
Past performance is no guarantee of future results.
Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.

 

 

May 30, 2018

Global Investors: Look for Buying Opportunities Amid Renewed Volatility

WORRIES THAT ITALY could give the Euro the boot, as well as continued political uncertainty in Spain and weaker economic data across Europe, have roiled the markets this week. But, says Chief Investment Officer Chris Hyzy, this isn’t another Greek debt crisis or Brexit. In this audio, taped earlier today, he offers his view of the recent weakness and its implications for investors, globally.

While this recent activity “has some recent flashbacks akin to the Greek debt crisis not too long ago for some global investors, the global growth picture is substantially stronger now versus back then,” says Hyzy. While “we should not dismiss these concerns—they do require close following—we expect robust profit growth to continue, particularly in the U.S., which should slow down off of the 22 percent growth of Q1 but remain surprisingly strong around 17 to 18 percent for the remaining quarters.”

Listen to his audio for more insights.

Please read important disclosures below.*

For weekly market insights from the Chief Investment Office, check out “Capital Market Outlook.”

 

 

April 25, 2018

4 Things That Could Keep the Markets Growing

WITH U.S. STOCKS FALLING by almost 2 percent, “equities around the world were pressured in the last couple of days,” says Chief Investment Officer Chris Hyzy in his latest audio, recorded earlier today.

Although reported first-quarter earnings have been strong, a number of factors are worrying investors. These include the rise of the 10 Year Treasury yield above 3%, higher commodity prices, and continued concerns over a possible trade war with China.

“Are Q1 earnings as good as it gets?” is the question on investors’ minds right now, says Hyzy. While it’s natural to step back and think about the implications of rising costs on growth, “we still expect double-digit equity returns from current levels in 2018,” he says.

Please read important disclosures below.*

What would it take to achieve that level of overall growth? Hyzy points to the following:

  1. “Corporate profits are going to have to outperform consensus expectations for the remainder of the year.”
  2. “10 year Treasury yields need to stay below 3.5 percent.”
  3. “Commodity prices (namely oil) cannot rise much sharper from current levels.”
  4. “Trade negotiations with China need to turn for the better.”

“It’s a lot to ask,” he admits, “but with close to 20 percent earnings growth expected, a patient and transparent Fed, and emerging market buying power still gaining strength, we think there is still time left for the bull market.”

Listen to the audio above for key insights on how investors can respond to this phase of the market cycle.

All information is as of 4/25/18 and subject to change.

 

 

April 9, 2018

Investors Want to Know: How Long Could Volatility Last?

“THE NOISE IN THE MARKETS is at sky-high level,” says Chief Investment Officer Chris Hyzy in this audio recorded at the end of a week that saw the markets continue their dizzying up-and-down trajectory. Friday’s dip was precipitated by an escalating trade war between the U.S. and China, and hawkish comments made by the Federal Reserve Chair on interest rates.

“As a result, short term market participants are understandably nervous, and long term investors are staying on the sidelines,” says Hyzy. Elevated volatility, he believes, could continue through June, “until North American Free Trade Agreement (NAFTA) and China trade negotiations are resolved and equity prices find their bottom.” Investors should expect to see volatility spike, depending on the news of the day on any given day during that time. Still, he emphasizes, “it is too premature to suggest the bull market cycle is ending and that a recession is around the corner.”

Look for corporate earnings announcements “to be the catalyst that should ultimately stabilize the markets,” Hyzy says. “Strong profits, a clear and stable interest rate policy and a de-escalation in the trade equation should re-establish the equity uptrend we experienced at the beginning of the year.”

Listen to the audio below for insights on how you can respond to what’s likely to be a continuing period of market uncertainty.

Please read important disclosures below.*

“It is too premature to suggest the bull market cycle is ending and that a recession is around the corner.” —Chris Hyzy, Chief Investment Officer

 

 

April 2, 2018

6 Reasons to Believe This Correction Won’t Last

THE SECOND QUARTER STARTED today in dramatic fashion with the Dow Jones, S&P 500 and Nasdaq indices moving into correction territory—down 10% or more from their highs for the year—prompted by concerns over the tech sector and trade disagreements. In this audio cast, Chief Investment Officer Chris Hyzy outlines 6 economic factors that, he believes, will help to support a rebound as earnings season begins next week.

“In our view, as we work through earnings season, the S&P 500 is likely to reverse the recent trend and head higher,” Hyzy says. “Business confidence should remain at record levels heading into the summer months, and tax reform and the repatriation of overseas capital should begin to filter through into the broader economy in a more assertive way.” He encourages investors to look at volatility as a “buying and rebalancing opportunity.” For more of his insights, listen to the audio cast below.

Please read important disclosures below.*

“In our view, as we work through earnings season, the S&P 500 is likely to reverse the recent trend and head higher.” —Chris Hyzy, Chief Investment Officer

 

 

March 23, 2018

Navigating the Sharp Edges of a ‘Saw Tooth’ Market

A NUMBER OF NEWS EVENTS CONVERGED to roil the markets this week: The announcement of China tariffs—and China’s anticipated response—heightened fears of a trade war. The tariffs came on the heels of a rate hike, signaling a slightly more hawkish tone from new Fed leadership. Earlier in the week, disturbing privacy disclosures bashed tech—the leadership sector over the past year. A bit of positive news rounded out the week, when Congress passed a $1.3 trillion spending bill, averting a government shutdown at midnight.


Past performance does not guarantee future results.

Look beyond short-term, news-driven volatility. “Stay the course and focus on your goals.” —Chris Hyzy, Chief Investment Officer,
Bank of America Global Wealth & Investment Management

“Volatility will likely remain a fact of life for investors this year, as a saw tooth market continues to seek a bottom and investors look for more positive signals,” says Chris Hyzy, Chief Investment Officer for Bank of America Global Wealth & Investment Management. “Despite this week’s correction, we continue to believe that the fundamentals are good. They’re still gathering momentum, and we maintain our 3000 year-end target on the S&P 500,” notes Hyzy.

He encourages investors to look beyond short-term, news-driven volatility. “Stay the course and focus on your goals,” he says. And be sure to reach out to your advisor whenever you have questions about current market conditions—or want to review your asset allocation in light of your current tolerance for risk.

For a historical look at how markets have bounced back after volatility, check out “Volatility in Pictures: Focus on the Rebounds.” Find more insights on market volatility in “What Should You Do When the Markets Get Volatile?”

 

 

March 2, 2018

This Week’s ‘Tariff Tantrum’: What to Watch for Next

CURRENT MARKET VOLATILITY in response to proposed tariffs on imported steel and aluminum should be seen as a short-term event rather than a signal of broader problems with markets or the economy, says Chris Hyzy, Chief Investment Officer for Bank of America Global Wealth & Investment Management. Despite the market’s “tariff tantrum,” underlying economic factors ranging from business earnings to the stability of the dollar suggest a positive outlook, he notes in an “Investment Insights” from the Chief Investment Office, “The Latest: Tariff Tantrum.”

Periodic volatility may offer opportunities to add to your portfolio at attractive prices, especially for investors with a long-term perspective.

Of course, it’s important to keep a close eye on events as they evolve, Hyzy cautions, in case the tariffs or other trade issues lead to broader economic disruptions. But as long as the fundamentals of the economy remain strong, periodic volatility may offer opportunities to add to your portfolio at attractive prices, especially for investors with a long-term perspective. Before making any decisions, be sure to speak with your advisor about what steps might be best for your financial strategy.

Read the CIO team’s “Investment Insights: The Latest: Tariff Tantrum” for insights into recent volatility and the outlook for the economy in the months to come.

 

 

February 20, 2018

3 Tips for Dealing with Market Volatility

AFTER ONE OF THE LEAST VOLATILE YEARS IN DECADES, most investors started 2018 wondering: “How much longer can this bull market last?” By the first week of February, they had an answer. Volatility resurfaced, big time, as the market entered a temporary “correction”—or 10% drop from a previous high—leaving many people a bit shaken and uncertain about what might come next.

As markets begin to show signs of recovery, the big question becomes: What should I do to manage my investments during these uncertain times? To help you deal with this uncertainty, we turned to Andrew Porter, director of Behavioral Finance at Merrill Lynch. He offered the following ideas.

Tune out the noise. The deluge of information we receive every day from our phones, TVs and computers might have something to do with increasing levels of uncertainty, says Porter. “We are inundated with new information all the time. There is no break. And that can be exhausting.” This information saturation—news alerts, stock tickers, tweets and posts—may lead to poor reactions. “We’re hardwired to want this amount of information, but not hardwired to deal with it,” he says. Consider blocking your smartphone’s push notifications and repurposing that time for reading print media or having an in-person conversation with someone you trust.

Train yourself to look longer-term. Porter asks, “If you use an app on your phone or computer to follow the stock market, is it showing you daily, weekly or monthly trending?” Experiment with setting it to “as long a time horizon as possible,” he advises. “That way you aren’t constantly processing a feed of changing information. Remember: The length of time you stay invested in the market is generally more important than market timing.”

Define your goals for investing. “Knowing what you want your money to achieve can help you through market movements,” Porter says. “Market volatility can mean different things for a near-term goal, like a home purchase, compared to a twenty-year retirement goal.” Consider talking over the following questions with your advisor:

  • Is my portfolio aligned to my purpose for investing?
  • What is a good schedule to review my goals and the progress of my investments?
  • If I feel an urge to take action, what choices could help me stay on track toward my goals?

These tips, along with regular conversations with your advisor, can prevent you from overreacting to uncertainty—or volatility—as well as helping you to become a more confident investor. “A clearly-defined process can provide stability and perspective to help you make more thoughtful decisions.”

 

 

February 14, 2018

Focus on the Fundamentals: “They’ve Rarely Been Better”

IS THERE SOMETHING WRONG WITH OUR ECONOMY? It’s an understandable question given the current volatility. But the fundamentals tell a different story, according to Joseph P. Quinlan, Head of Market & Thematic Strategy, and Lauren J. Sanfilippo, Vice President and Research Analyst, from our Chief Investment Office (CIO).

Despite the ongoing market turbulence, “in our analysis we find the fundamentals of the U.S. and global economy have rarely been better,” they write in this week’s Capital Market Outlook from the CIO team. In the U.S. “stronger economic growth, the tailwinds from tax reform and a currently weaker U.S. dollar all point to higher earnings for the S&P 500.”

Inflationary pressures are building for the right reasons. They reflect the underlying strength of the economy.

The current bout of volatility was touched off by a positive January payroll report, which stoked fears of rising consumer prices and interest rates. But those inflationary pressures are building for the right reasons, say Quinlan and Sanfilippo. They reflect the underlying strength of the economy.

For more insights, read “Quiet Time May Be Over But in Our View Not the Market Rally,” found on page 3 of this week’s Capital Market Outlook from our Chief Investment Office.

Past performance is no guarantee of future results.

 

 

February 9, 2018

Why Volatile Markets Call for a Long-Term Perspective

FOR INVESTORS, THE BEST RESPONSE TO A WEEK OF UNSETTLING VOLATILITY is to stay the course, says Chris Hyzy, Chief Investment Officer for Bank of America Global Wealth & Investment Management. “While the declines were dramatic, we believe stocks were overdue for a pullback following the record gains we’ve seen through 2017 and into January of this year.”

In the video below, Hyzy offers further insights into the forces behind the recent correction. Because the economy remains fundamentally strong, “investors who maintain a long-term perspective are best positioned to capture new growth opportunities as they emerge,” he adds. Watch the video, then read the latest Investment Insights from the Chief Investment Office, “Stay the Course.” And be sure to reach out to your advisor to discuss your investments in the current market environment.

Please read important disclosures below.*

Download CIO “Investment Insights: Stay the Course” here.

 

 

February 6, 2018

How to Respond to Market Volatility? Stay the Course.

AFTER A YEAR OF STEADILY RISING MARKETS, the current volatility can seem like jarring mid-air turbulence during an overseas flight. As the markets struggle to regain balance, the key for investors is to avoid overreacting and to focus on your long-term objectives, says Chris Hyzy, Chief Investment Officer for Bank of America Global Wealth & Investment Management.

What’s behind the volatility? If anything, the market drop may be the result of too much good news, Hyzy notes in a new CIO Investment Insights, “The Latest: Darkest Before the Dawn.” Amid higher earnings for businesses, solid fundamentals, and enthusiasm over the new tax law, investment markets became overextended—leading to fears about inflation and rising interest rates. A change in leadership at the Federal Reserve, from Janet Yellen to Jerome Powell, added to the uncertainties. Meanwhile, rapid selling by complex quantitative investment programs drove markets down further.

What does this mean for you? While the calm markets of 2017 may have lulled investors into assuming otherwise, volatility is an inevitable and even normal part of markets and investing, Hyzy suggests. Over the past 30 years, U.S. stocks have averaged three pullbacks per year of 5 percent or more, according to BofA Merrill Lynch Global Research.

Investors who stay the course and take a long-term view may find that downturns—however unsettling—represent an opportunity to add to a diversified portfolio.

The good news is that the fundamentals of the economy remain strong, with corporate profits expected to rise approximately 16 percent, Hyzy notes. In other words, while ongoing volatility may be a fact of life, investors who stay the course and take a long-term view may find that downturns—however unsettling—represent an opportunity to add to a diversified portfolio.

For insights into the recent volatility, and how best to respond, read the new CIO Investment Insights, “The Latest: Darkest Before the Dawn.”

 

 


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