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Timely insights to help you manage risk when markets shift
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.
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:
“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.
“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.
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.
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.
“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?”
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.”
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.
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:
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.”
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.”
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.
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.
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.
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.”
*Investing involves risk, including the possible loss of principal. No investment program is risk-free, and a systematic investing plan does not ensure a profit or protect against a loss in declining markets. Any investment plan should be subject to periodic review for changes in your individual circumstances, including changes in market conditions and your financial ability to continue purchases.
It is not possible to invest directly in an index.
Asset allocation, diversification, dollar cost averaging and rebalancing do not ensure a profit or protect against loss in declining markets.
Past performance is no guarantee of future results.
The opinions expressed are those of the Global Wealth & Investment Management Chief Investment Office (GWIM CIO) only and are subject to change. While some of the information included draws upon research published by BofA Merrill Lynch Global Research, this information is neither reviewed nor approved by BofA Merrill Lynch Global Research. This information and any discussion should not be construed as a personalized and individual recommendation, which should be based on your investment objectives, risk tolerance, and financial situation and needs. This information and any discussion also is not intended as a specific offer by Merrill Lynch, its affiliates, or any related entity to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service. Investments and opinions are subject to change due to market conditions and the opinions and guidance may not be profitable or realized. Any information presented in connection with BofA Merrill Lynch Global Research is general in nature and is not intended to provide personal investment advice. The information does not take into account the specific investment objectives, financial situation and particular needs of any specific person who may receive it. Investors should understand that statements regarding future prospects may not be realized.
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