The first quarter of 2022 has been marked by continued surging inflation, geopolitical risks, and now, concerns of a looming recession. In light of these headwinds, however, BMO Capital Markets Chief Investment Strategist Brian Belski has a word of advice for investors to navigate the current market environment.
“You know, the market does not like uncertainties. And [the market] cleared up one uncertainty when the Fed came out and was very clear about raising interest rates during its meeting here very soon by 25 basis points. So the market liked that,” Belski told Yahoo Finance Live. “But the market — on a short term basis in terms of the U.S. stock market — was obviously very oversold and due for the snapback.”
Belski pointed to recent turbulence in oil and bond markets as being indicative of current volatility and uncertainty, but emphasized the importance of keeping a level head with regard to investing as markets transition to a more “fundamentally-driven, earnings-driven” state.
“So I think some of this is very near term,” he added. “I think that's what we talk about — control [what] you can control — stick with your process and discipline. You need to be an investor, not a trader.”
Belski joined Yahoo Finance Live to discuss his outlook on markets amid volatility, the Russia-Ukraine war, and next week’s Federal Reserve meeting. The FOMC will meet on March 15 and 16, with forecasts anticipating an interest rate hike of at least 25 basis points as the Fed seems set on pumping the brakes on inflation.
Stocks have had a rough go since the turn of the new year, with impending rate hikes and ensuing broader market pullback spurring investors to choose value over growth stocks. Many growing companies that saw booming valuations and rousing stock narratives throughout the pandemic recovery period have since dipped as a result. This dynamic was seen largely in sectors such as biotech, among others.
‘We are not changing our forecasts’
In spite of the many headwinds currently facing markets, Belski said that he still expects solid performance for the S&P 500 (^GSPC) through to the end of the year.
“Absolutely, [we still expect solid returns for the S&P 500 this year]. And we are not changing our forecasts, we're not going to be reactive,” he said. “If you take a look back at history when we've had corrections, we've had 29 corrections since 1970 in the United States stock market as defined by the S&P 500. And [in] 12 months following, the average rebound is 27%.”
According to Belski, investors should not go looking for a black swan in the Russia-Ukraine war. To him, COVID-19 was the black swan, and it’s growing smaller in the rearview mirror. And as the world and markets continue to attempt a return to normalcy, Belski predicts that average annual returns will cool down to around 8% to 10% for the next three to five years.
He reiterated that earnings are beginning to have a broadening effect across sectors, making value stocks more attractive and sensible for investment.
“However, if we do see a rapid recount in terms of earnings pulling back, that's going to favor growth stocks again,” Belski said. “So that's why our advice is [to] own both growth and value [stocks]. Own small, mid, and large together. Be very balanced and moderate across all of those asset classes inside.”
Thomas Hum is a writer at Yahoo Finance. Follow him on Twitter @thomashumTV