The first quarter of 2022 has been marked by continued rising inflation, geopolitical risks and now concerns of an impending recession. However, in light of these headwinds, BMO Capital Markets Chief Investment Strategist Brian Belski has some advice for investors to navigate the current market environment.
“You know, the market doesn’t like uncertainties. Y [the market] cleared up an uncertainty when the Fed came out and was very clear about raising interest rates during their meeting here very soon by 25 basis points. So the market liked that,” Belski told Yahoo Finance Live. “But the market, in the short term in terms of the US stock market, was obviously very oversold and ready to pull back.”
Belski noted that the recent turbulence in the oil and bond markets is indicative of current volatility and uncertainty, but stressed the importance of keeping a cool head on investing as markets transition to a more “driven” state. for fundamentals and profits.
“So I think some of this is very short term,” he added. “I think that’s what we’re talking about: control [what] you can control: stick to your process and discipline. You have to be an investor, not a trader.”
Belski joined Yahoo Finance Live to discuss his outlook on markets amid volatility, the war between Russia and Ukraine and next week’s Federal Reserve meeting. The FOMC is due to meet on March 15-16, with forecasts calling for an interest rate hike of at least 25 basis points, as the Fed appears determined to curb inflation.
Stocks have struggled since the start of the new year, with rate hikes looming and a broader market pullback prompting investors to choose value stocks over growth stocks. As a result, many growth companies that saw booming valuations and rousing stock narratives during the pandemic recovery period have slumped. This dynamic was largely seen in sectors such as biotechnology, among others.
‘We do not change our forecasts’
Despite the many headwinds markets are currently facing, Belski said he still expects a strong performance for the S&P 500 (^GSPC) through the end of the year.
“Absolutely, [we still expect solid returns for the S&P 500 this year]. And we are not going to change our forecasts, we are not going to be reactive,” she said. “If you take a look at history when we’ve had corrections, we’ve had 29 corrections since 1970 in the US stock market as defined by the S&P 500. And [in] 12 months later, the average rebound is 27%.”
According to Belski, investors should not look for a black swan in the war between Russia and Ukraine. For him, COVID-19 was the black swan, and it’s getting smaller in the rearview mirror. And as the world and markets continue to try to get back on track, Belski predicts that average annual returns will drop to around 8% to 10% over the next three to five years.
He reiterated that earnings are beginning to have a ripple effect across sectors, making value stocks more attractive and investment sensitive.
“However, if we see a quick recount in terms of earnings pullback, that will favor growth stocks again,” Belski said. “So that’s why our advice is [to] possess both growth and value [stocks]. It owns small, medium and large together. Be very balanced and dovish on all those insider asset classes.”
Thomas Hum is a writer at Yahoo Finance. Follow him on Twitter @thomashumTV
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