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Market Volatility

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.

CIOUPDATE

Chris Hyzy

Bank of America

05/30/18

9:30 am ET

Operator: All information is as of 5/30/2018 and subject to change based on market movements

Chris Hyzy: Hello, this is Chris Hyzy with the latest CIO market update. Global equity market weakness led by Europe over the last couple of days came on the back of Italy’s recent political uncertainty. Italy’s president blocked the formation of a government that was deemed to be decidedly against the Euro which increased concerns that Europe’s third largest economy would have no coalition through the summer. This comes on the back of weaker economic data across the continent and a potential for a confidence vote later this week in Spain’s current government.

The Euro fell and investors sold Italian bonds aggressively while increasing risk aversion by buying US treasuries and German bunds. In the US, the Dow sold off more than 450 points on Tuesday before ending down about 390 with banks leading the selloff. In addition to a shift in European equity investment flows back to the US, capital also sought safety in the US Dollar. A stronger Dollar is one of the larger worries overhanging the emerging markets in the past few months.

Other risk indicators such as high yield spreads and credit default swaps also sharply widened out to levels that would normally beget more aggressive equity weakness than what was actually realized on Tuesday.

This relationship needs a closer eye the longer the Italian political situation remains unclear.

So what’s our view on this recent weakness? Global investors are obviously unsettled given the mixture of slower European economic growth, sharp political uncertainty in Italy and potentially Spain which could beget more economic weakness, a continued strong Dollar which could pressure emerging markets further, and now the possibility that the Fed could widen policy actions relative to other central banks such as Europe and Japan.

Although some of this is to be expected in mid to late cycle economic stages, the overlay of additional political uncertainty in Europe has some recent flashbacks akin to the Greek debt crisis not too long ago for some global investors. We do not believe the recent developments in Italy result in a broader sovereign issue in Europe. Yields were almost three times higher in some cases in 2012 and all of the southern periphery of Europe was being questioned, and most importantly, global growth struggled to stay above 1% at that time.

Currently, although Europe has hit a soft patch recently and European banks still have not cleansed their balance sheets of questionable assets, we expect growth to pick back up above 1.25% to 1.5%, and the European Central Bank to remain very accommodative. We also expect US real GDP growth to hover above trend levels at around 2.5% to 3% and Japan and emerging markets to follow despite the stronger Dollar concerns and slightly higher rates. We also expect robust profit growth to continue particularly in the US which should slow down off of the 22% growth in the first quarter, but remain surprisingly strong, around 17% to 18% for the remaining quarters.

$158.00 in earnings for the S&P500 is the expectations for 2018 with consensus about $170.00 in earnings for the S&P for 2019. We still expect two more hikes by the Fed, but remain patient and measured. We don’t expect US yields to climb too much from current levels for the remainder of the year given the anchor of lower yields in competitive markets across Europe. Our target still remains around 2.8% to 3.3% for the 10-year treasury yield at the end of the year. We believe a grind higher environment is still in the cards for the second half.

Stability and measured strength in the Dollar is still our view for the back half. We would also maintain an equity overweight relative to strategic manage remarks and relative to fixed income in general. The stock-to-bond ratio is still more favorable towards stocks in both fundamental and technical factors in our view. Our equity preference is still large and small US equities and emerging markets. Despite our expectations of a grind higher in yields, fixed income is still a hedge on equity volatility overall.

Given our view of robust earnings powered by rising capital expenditures and healthy consumer spending being a core reason for equity optimism plus reasonable equity valuations at present and strong buyback expectations, we view market episodes like this as opportunities to add to exposures. Weakness in small caps, emerging markets, technology and financials are areas to consider adding to in a multi-asset portfolio in the coming weeks.

So in summary, the latest growth and political concerns out of Europe are much different than the most recent past, some six years ago, and the global growth picture is substantially stronger now versus back then. Back then, global recession and the survival of the Euro block was a worry versus today

which is more about demands of redenomination and whether higher rates slow growth down to lower levels. We expect Italian uncertainty to remain for the summer months and questions to continue to circle around about the effects of interest rate normalization.

We should not dismiss these concerns; they do require close following, and clearly, the sawtooth market pattern has been extended, but eventually we expect the visibility of above-trend global economic growth and sharp US profit growth to attract portfolio flows back to equities in the second half of the year. We view these as the keys to the gates of worry. It maybe taking a break and concerns have picked up recently, but this market uptrend cycle is not over, in our opinion. Keep diversification at a high level and use market weakness where and when appropriate to keep risk budgets in line with long-term goals.

Thank you.

Operator: The views and opinions expressed are those of the Global Wealth and Investment Management Chief Investment Office are subject to change without notice and may differ from views expressed by Bank of America Corporation or its affiliates.

Please keep in mind, the information presented is for discussion purposes only and is not intended to serve as a recommendation or solicitation for the purchase or sale of any type of security which should be based on your investment objective, risk tolerance, financial situation and needs.

Past performance is not a guarantee of future results. Diversification does not ensure a profit or protect against loss in declining markets. Investment products are not FDIC-insured, are not bank-guaranteed and may lose value.

Global Wealth and Investment Management is a division of Bank of America Corporation. Merrill Lynch Wealth Management, Merrill Edge, US Trust and Ban of America Merrill Lynch are affiliated subdivisions within Global Wealth and Investment Management. Merrill Lynch Wealth Management makes available products and services offered by Merrill Lynch, Pierce, Fenner & Smith Incorporated, a registered broker/dealer and member of Securities Investor Protection Corporation and other subsidiaries of Bank of America Corporation. US Trust operates through Bank of America and a member of FDIC and other subsidiaries of Bank of America Corporation. Bank of America Merrill Lynch is a marketing name for the retirement services business of Bank of America Corporation.

END

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.

43801

Chris Hyzy

Bank of America

04/25/18

9:15 am ET

Chris Hyzy: Hello, this is Chris Hyzy. Equities around the world were pressured in the last couple of days with US stocks falling by almost 2%. Strong earnings by Bellwether companies were not enough to stem the worries that began around midday Tuesday. Although earnings for the first quarter had been very strong with profits tracking above expectations at an 18% growth rate and net profit margins at 11%, which is the highest we’ve seen in almost a decade, four primary concerns have developed this week and one lingering worry has not faded.

What are the new concerns? First, input costs are rising as commodity prices have turned higher and labor costs have shown signs of creeping higher as well. The question on investors’ minds now is first quarter earnings as good as it gets, that has been a new worry in the last couple of days. Secondly, 10-year treasury yields pierced the 3% level for the first time since 2014 creating concerns of higher interest costs for a variety of debt. Third, with the potential of rising labor and input costs are higher yields indicating inflation is just around the corner. Finally, the one lingering worry that has not faded has been the trade cold war with China. The on-again, off-again negotiations seem to be more saber rattling for now versus constructive discussions, but it still remains in overhang on the broader market.

These concerns collectively are causing market participants to question economic growth in the second half of this year. It’s also causing them to question the magnitude of Fed tightening, the level of corporate earnings for the rest of the year, and whether interest rates are going to head past 3.5% on the 10-year treasury. We understand the concerns and believe that it is natural to step back and think about the implications of rising cost on the level of growth. This is normal in late cycle environments. However, in our view, we believe we are still too early in the process for the input cost to pinch overall growth, push yields sharply higher and prompt corporations to lower guidance for future quarters.

Some key globally oriented companies are trying to keep guidance grounded and have not projected out the same level of growth rate they have experienced in the first quarter for the rest of the year, but they have not lowered guidance. We expect second quarter through fourth quarter of this year to remain strong. We still have not also had the stimulus from the tax package filter into the broader economy as well as corporate earnings overall. The emerging markets are still early in their economic cycle and their buying power is just gathering momentum. Europe is pausing, but not heading below trend. US stock buy-back trends are suggesting record numbers for the full year. Credit spreads are still stable and low. Investor sentiment, as measured by the American Association of Institutional Investors, has now fallen back to September 2017 levels, when the S&P was just around 2,500.

Equity valuations in our view are not excessive. The earnings yield of the S&P in fact, which is the inverse of the price to earnings multiple is around 6%, backing out the 10-year treasury which is 3%, you get a spread level, which is the lowest in years. Having said this, the recent bond yield rise has made fixed income more competitive with equities for income oriented driven investors. The US two-year yield is now 2.5% which is about 50 basis points above the dividend yield of the S&P 500 and 10-year investment grade corporate bond yields average approximately 4%. So, portfolio rebalancing by more income oriented investors is occurring. This can create a saw tooth market pattern.

In addition, index dominating companies are being used as a source of funds by portfolio managers as they rotate to more cash flow oriented and reflationary stocks. This can weigh on the broader index prices and make it harder for PEs to expand. We think this is another chapter in the book of worries that tend to filter through in the later stages of the cycle. We still expect double digit equity returns from current levels in 2018, but corporate profits are going to have to outperform consensus expectations for the remainder of the year. Ten-year treasury yields will need to stay below 3.5%. Commodity prices, namely oil, can’t rise much sharper from current levels and trade negotiations with China need to turn for the better in our opinion.

It’s a lot to ask, but with close to 20% earnings growth expected, a patient and transparent Fed and the emerging market buying power still gaining strength, we think there’s still time left for this bull market. As we stated in our year ahead strategy, continue to increase portfolio diversification within asset classes. Increase exposure to higher quality relative to lower quality in both equities and fixed income. Use commodity exposure as a hedge on stocks and bonds where appropriate and continue to rebalance within your designated risk budgets when large weak or strong market episodes do develop. Active management should continue to outperform in our opinion as a rotation towards more reflationary industries and away from the index dominating companies within equities continues in the next year. We are still buyers [on weakness] in equities in our preferred themes overall. Thank you.

END

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.

Chris Hyzy on Market Volatility

Audio Record: April 6, 2018 @4:15pm

Since this bull market is almost 10 years old and information noise is at sky-high levels-particularly when the noise at this point is around trade, which is a primary driver of global economic growth, as well as interest rates, which helps determine the price of capital and assets in general. It is quite natural to expect rolling concerns. We think the concerns are healthy to keep in mind the further we travel through this cycle, but we do feel it is too premature, at this point, to suggest the cycle is ending and a recession is around the corner in 2018.

Now once again, we’ve experienced further negative volatility in recent days with the major market averages close to retesting their February lows. The latest concerns are more of the same. Further potential imposition of tariffs on China, this time totaling close to $100 if not just over $100 billion. Retaliatory trade measures back from China on some of America’s strategic exports and now once again, more hawkish interest rate policy comments.

As a result, short-term market participants are nervous and have been reacting to the saber rattling. Long-term investors have been subtly moving to the sidelines or simply staying on the sidelines. We have seen this most recently in the equity flow trends that were announced this week.

Give these concerns, what’s our view?

We still expect elevated volatility to remain in the coming weeks and perhaps through mid-year. Volatility can also spike intraday given the news of the day.

Secondly, uncertainty on trade and interest rate policy should also remain. The North American Free Trade Agreement and China negotiations with the United States should continue through May and into June.

Bond yields should stay stuck in a range and equity prices in our opinion are still trying to find a bottom as economic and market fundamentals ultimately provide that catalyst to reestablish the equity market trend. And finally, 3 Ps are important to keep in mind. Number 1, profits. 2, policy, and 3, positioning. These should all continue to take their turn on what matters most to investors throughout the rest of 2018. Now in our view, strong profits are needed. A clear and stable interest rate policy is also needed, particularly as it relates to tame wage inflation and a de-escalation is needed in the trade equation to change investor sentiment for the better and again, reestablish that equity uptrend we experienced at the beginning of the year.

In summary, in bull markets that are in their late stage environments, market bottoms traditionally take a few months to occur. Right now, we believe we are currently in that process, which is about eight to nine weeks already in. The catalysts that ultimately stabilizes the market and supports higher equity prices is corporate earnings, in our view. Valuations are now back to more normal levels and in the coming weeks, these earnings announcements which generally start around April 9th and continue to culminate throughout the rest of April, should provide that stabilizing force as we expect investor flows to once again come back into equities, given the high profit growth that we anticipate. We continue to

believe that weak market periods represent a rebalancing opportunity for the long-term investor. Stay the course.

IMPORTANT INFORMATION

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.

Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

The investments discussed have varying degrees of risk. Some of the risks involved with equities include the possibility that the value of the stocks may fluctuate in response to events specific to the companies or markets, as well as economic, political or social events in the U.S. or abroad. Bonds are subject to interest rate, inflation and credit risks. Investments in high-yield bonds may be subject to greater market fluctuations and risk of loss of income and principal than securities in higher rated categories. Investments in foreign securities involve special risks, including foreign currency risk and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are magnified for investments made in emerging markets. Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates, and risk related to renting properties, such as rental defaults. There are special risks associated with an investment in commodities, including market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors.

Merrill Lynch Wealth Management makes available products and services offered by Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S) and other subsidiaries of Bank of America Corporation (BofA Corp.). Merrill Edge® is the marketing name for two businesses: Merrill Edge Advisory Center, which offers team-based advice and guidance brokerage services; and a self-directed online investing platform.

Global Wealth & Investment Management is a division of Bank of America Corporation (“BofA Corp.”), Merrill Lynch Wealth Management, Merrill Edge®, U.S. Trust and Bank of America Merrill Lynch are affiliated sub-divisions within Global Wealth & Investment Management, Bank of America Merrill Lynch.

The Private Banking and Investment Group is a division of MLPF&S that offers a broad array of personalized wealth management products and services. Both brokerage and investment advisory services (including financial planning) are offered by the Group's Private Wealth Advisors through MLPF&S, a registered broker-dealer and registered investment adviser. The nature and degree of advice and assistance provided, the fees charged, and client rights and Merrill Lynch's obligations will differ among these services. Investments involve risk, including the possible loss of principal investment.

U.S. Trust operates through Bank of America, N.A., and other subsidiaries of BofA Corp.

Bank of America, N.A., Member FDIC.

Investment products:

Are Not FDIC Insured

Are Not Bank Guaranteed

May Lose Value

     ARGBYBL9

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

Chief Investment Officer Chris Hyzy

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.

Chris Hyzy

Bank of America

04/03/2018

12:30 pm ET

Chris Hyzy: Hello, this is Chris Hyzy. Given the latest market action, I wanted to provide our latest thoughts. Investors have been searching for positive catalysts to break the consistent flow of concerns in the last few weeks, and the start of the second quarter is no different in our view. Markets are selling off to start the second quarter with the technology sector pressuring the major industries once again. A lack of positive development is mixed with geopolitical and individual corporate issues are keeping portfolio flows in the sidelines. Currently, the DOW, the S&P 500 and NASDAQ are all in correction territory which indicates the indices are down 10% or more from their highs for the year. The S&P 500 and the DOW industrial average closed the first quarter down approximately 1% to 2% after rallying around 8% in January alone. International markets mainly Europe and Japan underperformed the US’ tariff and trade concerns developed in March. The dollar was slightly weak against most major currencies, oil rallied, gold finished up over 1%, yields rose earlier in the quarter, but has since backed off with the US ten-year now at about 2.73% from a high of around 2.95% and the third year is also backed down below 3%. So, what is the broader market and economic backdrop look like now?

Number one, economic growth should increase throughout this year as capital expenditures rise which helps productivity and helps keep inflation from getting to levels that would worry the Fed, and consumer spending should also remain healthy for the rest of the year in our view. Consumer business confidence as well as overall confidence should remain at record levels heading into the summer months. Job growth should also remain supportive of slightly higher wage growth. Tax reform and repatriation of overseas capital should begin to filter through into the broader economy in a more transparent and assertive way. Emerging markets are still earlier in their growth cycle, which should help further boost durable goods orders in manufacturing industries overall, and lastly, number six, higher nominal growth helps produce higher cash flows which we expect this to gather momentum each quarter for the remainder of the year. Secondarily, when can a short-term catalyst develop in our opinion? We believe profits and higher cash flows starting in the US still remain the catalyst that can break the recent negative trend. Earnings announcements begin the week of April 9PthP and key industrial, financial, and technology companies announced throughout the rest of April. As we work through earnings season, the S&P 500 is likely to reverse the recent trend in head higher in our view. Some key technical levels to keep in mind remain the 200 day moving average, which is predominantly a short term indicator. However, it’s around 25, 36 on the S&P 500. That’s the level that we reached earlier in February during the initial move lower in equities and we are only approximately 2% away from the current levels as we speak right now.

What can we expect in the short term overall? We believe we are in the vacuum of positive news environment with a higher level of volatility and one that incorporates a repricing of risk and portfolios as we enter the late stage in the economy. Investors are searching for more transparent signs that markets are close to their bottoms in the short term and that profits are the engine that allows investors to increase risk in their portfolios. Thirdly, we expect rates to grind higher, not sharply increase, as the Fed patiently normalizes policy and inflation slowly ticks higher. Fourth, we prefer high quality investments across all asset classes at this stage in the cycle. We also view weak episodes like this one are emblematic of a marketplace trying to build a bottom. We would use these types of periods as buying opportunities or rebalancing opportunities in our areas of emphasis. We expect US equities and emerging markets to maintain their leadership once the uptrend reasserts itself, and in terms of sectors, technology and financial should also lead once again in our opinion. Our main equity team remains high quality dividend growth ideas across markets, sectors, indices, and managers. In fixed income, we prefer high quality investments as well across all segments and we still prefer neutral to slightly lower duration. Lastly, our top portfolio team also remains, which is a high level of diversification and more active rebalancing as volatility stays elevated. In our opinion, market corrections tend to latch on to negative headlines until a positive fundamental catalyst breaks the feedback loop. Although we recognize there are risks such as possible further protection as trade measures, individual corporate regulatory issues or Libor Yields that continue to increase more sharply than expected, we believe it is too early for this full cycle to end. Thank you.

IMPORTANT INFORMATION

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.

Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

The investments discussed have varying degrees of risk. Some of the risks involved with equities include the possibility that the value of the stocks may fluctuate in response to events specific to the companies or markets, as well as economic, political or social events in the U.S. or abroad. Bonds are subject to interest rate, inflation and credit risks. Investments in high-yield bonds may be subject to greater market fluctuations and risk of loss of income and principal than securities in higher rated categories. Investments in foreign securities involve special risks, including foreign currency risk and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are magnified for investments made in emerging markets. Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates, and risk related to renting properties, such as rental defaults. There are special risks associated with an investment in commodities, including market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors.

Merrill Lynch Wealth Management makes available products and services offered by Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S) and other subsidiaries of Bank of America Corporation (BofA Corp.). Merrill Edge® is the marketing name for two businesses: Merrill Edge Advisory Center, which offers team-based advice and guidance brokerage services; and a self-directed online investing platform.

Global Wealth & Investment Management is a division of Bank of America Corporation (“BofA Corp.”), Merrill Lynch Wealth Management, Merrill Edge®, U.S. Trust and Bank of America Merrill Lynch are affiliated sub-divisions within Global Wealth & Investment Management, Bank of America Merrill Lynch.

The Private Banking and Investment Group is a division of MLPF&S that offers a broad array of personalized wealth management products and services. Both brokerage and investment advisory services (including financial planning) are offered by the Group's Private Wealth Advisors through MLPF&S, a registered broker-dealer and registered investment adviser. The nature and degree of advice and assistance provided, the fees charged, and client rights and Merrill Lynch's obligations will differ among these services. Investments involve risk, including the possible loss of principal investment.

U.S. Trust operates through Bank of America, N.A., and other subsidiaries of BofA Corp.

Bank of America, N.A., Member FDIC.

Investment products:

Are Not FDIC Insured

Are Not Bank Guaranteed

May Lose Value

ARCNY9V6

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. 

Chief Investment Officer Chris Hyzy

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, in hopes of averting a government shutdown at midnight. 

Various volatility charts

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.

March 2, 2018

What to Watch for after this Week's 'Tariff Tantrum'

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. 

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 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 the GWIM 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 the GWIM Chief Investment Office.

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.

Chris Hyzy

 

Bank of America

 

04/03/2018

 

12:30 pm ET

 

Chris Hyzy: Hello, this is Chris Hyzy. Given the latest market action, I wanted to provide our latest thoughts. Investors have been searching for positive catalysts to break the consistent flow of concerns in the last few weeks, and the start of the second quarter is no different in our view. Markets are selling off to start the second quarter with the technology sector pressuring the major industries once again. A lack of positive development is mixed with geopolitical and individual corporate issues are keeping portfolio flows in the sidelines. Currently, the DOW, the S&P 500 and NASDAQ are all in correction territory which indicates the indices are down 10% or more from their highs for the year. The S&P 500 and the DOW industrial average closed the first quarter down approximately 1% to 2% after rallying around 8% in January alone. International markets mainly Europe and Japan underperformed the US’ tariff and trade concerns developed in March. The dollar was slightly weak against most major currencies, oil rallied, gold finished up over 1%, yields rose earlier in the quarter, but has since backed off with the US ten-year now at about 2.73% from a high of around 2.95% and the third year is also backed down below 3%. So, what is the broader market and economic backdrop look like now?

 

Number one, economic growth should increase throughout this year as capital expenditures rise which helps productivity and helps keep inflation from getting to levels that would worry the Fed, and consumer spending should also remain healthy for the rest of the year in our view. Consumer business confidence as well as overall confidence should remain at record levels heading into the summer months. Job growth should also remain supportive of slightly higher wage growth. Tax reform and repatriation of overseas capital should begin to filter through into the broader economy in a more transparent and assertive way. Emerging markets are still earlier in their growth cycle, which should help further boost durable goods orders in manufacturing industries overall, and lastly, number six, higher nominal growth helps produce higher cash flows which we expect this to gather momentum each quarter for the remainder of the year. Secondarily, when can a short-term catalyst develop in our opinion? We believe profits and higher cash flows starting in the US still remain the catalyst that can break the recent negative trend. Earnings announcements begin the week of April 9PthP and key industrial, financial, and technology companies announced throughout the rest of April. As we work through earnings season, the S&P 500 is likely to reverse the recent trend in head higher in our view. Some key technical levels to keep in mind remain the 200 day moving average, which is predominantly a short term indicator. However, it’s around 25, 36 on the S&P 500. That’s the level that we reached earlier in February during the initial move lower in equities and we are only approximately 2% away from the current levels as we speak right now.

What can we expect in the short term overall? We believe we are in the vacuum of positive news environment with a higher level of volatility and one that incorporates a repricing of risk and portfolios as we enter the late stage in the economy. Investors are searching for more transparent signs that markets are close to their bottoms in the short term and that profits are the engine that allows investors to increase risk in their portfolios. Thirdly, we expect rates to grind higher, not sharply increase, as the Fed patiently normalizes policy and inflation slowly ticks higher. Fourth, we prefer high quality investments across all asset classes at this stage in the cycle. We also view weak episodes like this one are emblematic of a marketplace trying to build a bottom. We would use these types of periods as buying opportunities or rebalancing opportunities in our areas of emphasis. We expect US equities and emerging markets to maintain their leadership once the uptrend reasserts itself, and in terms of sectors, technology and financial should also lead once again in our opinion. Our main equity team remains high quality dividend growth ideas across markets, sectors, indices, and managers. In fixed income, we prefer high quality investments as well across all segments and we still prefer neutral to slightly lower duration. Lastly, our top portfolio team also remains, which is a high level of diversification and more active rebalancing as volatility stays elevated. In our opinion, market corrections tend to latch on to negative headlines until a positive fundamental catalyst breaks the feedback loop. Although we recognize there are risks such as possible further protection as trade measures, individual corporate regulatory issues or Libor Yields that continue to increase more sharply than expected, we believe it is too early for this full cycle to end. Thank you.

 

IMPORTANT INFORMATION

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.

 

Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

 

The investments discussed have varying degrees of risk. Some of the risks involved with equities include the possibility that the value of the stocks may fluctuate in response to events specific to the companies or markets, as well as economic, political or social events in the U.S. or abroad. Bonds are subject to interest rate, inflation and credit risks. Investments in high-yield bonds may be subject to greater market fluctuations and risk of loss of income and principal than securities in higher rated categories. Investments in foreign securities involve special risks, including foreign currency risk and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are magnified for investments made in emerging markets. Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates, and risk related to renting properties, such as rental defaults. There are special risks associated with an investment in commodities, including market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors.

 

Merrill Lynch Wealth Management makes available products and services offered by Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S) and other subsidiaries of Bank of America Corporation (BofA Corp.). Merrill Edge® is the marketing name for two businesses: Merrill Edge Advisory Center, which offers team-based advice and guidance brokerage services; and a self-directed online investing platform.

 

Global Wealth & Investment Management is a division of Bank of America Corporation (“BofA Corp.”), Merrill Lynch Wealth Management, Merrill Edge®, U.S. Trust and Bank of America Merrill Lynch are affiliated sub-divisions within Global Wealth & Investment Management, Bank of America Merrill Lynch.

The Private Banking and Investment Group is a division of MLPF&S that offers a broad array of personalized wealth management products and services. Both brokerage and investment advisory services (including financial planning) are offered by the Group's Private Wealth Advisors through MLPF&S, a registered broker-dealer and registered investment adviser. The nature and degree of advice and assistance provided, the fees charged, and client rights and Merrill Lynch's obligations will differ among these services. Investments involve risk, including the possible loss of principal investment.

 

U.S. Trust operates through Bank of America, N.A., and other subsidiaries of BofA Corp.

Bank of America, N.A., Member FDIC.

Investment products:

Are Not FDIC Insured

Are Not Bank Guaranteed

May Lose Value

ARCNY9V6

Please read important disclosures below.*

February 9, 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.

Graph showing market pullbacks.

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.

Related Insights

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