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How investors can figure out their next move amid COVID-19 market volatility

Chief Investment Strategist at Riverfront Investment Group Chris Konstantinos joins Yahoo Finance Live to discuss his expectations for markets in the coming weeks and how investors should respond.

Video Transcript

MYLES UDLAND: Let's take a quick look at the market right now as we head towards the final closing bell of this very long week for investors. Off the lows of the session, the Dow off some 500 points right now, but we did see-- we are seeing some selling as we head towards the close. 32 minutes to go in today's trading session.

Let's bring in Chris Konstantinos right now. He is the chief investment strategist at RiverFront Investment Group to talk a little bit about this market and maybe where the economy could be headed from here.

So Chris, I don't know the last time we talked to you. It doesn't feel like it was that long ago. But certainly, the world was in a completely different place. What do you make of what you've seen just from the market's response to the coronavirus in the last three weeks? Is there any way that you're kind of trying to put this in context, or is this an event that stands alone?

CHRIS KONSTANTINOS: Well, first of all, Myles, thanks for having me under these bizarre-- bizarre circumstances. I'm talking to you from my home office here. I think the conversation you were having just a few minutes ago on the air is really illustrative because we were talking about a Goldman Sachs forecast.

You know, Jan Hatzius and his group some of the best economists in the world. They took their Q2 forecast from negative 5 to negative 24, something like that, in the span of a couple weeks. I think that-- I think that shows you, one, just how unprecedented the situation is economically, and two, how difficult it is for people in my business to try to come up with a credible forecast in these types of environments.

So, you know, is negative 24 credible? I suspect that it is. You know, if you're looking at Chinese high-frequency data-- you know, the daily or weekly data that comes out of the Chinese economy-- basically, their economic activity fell by, you know, 50-plus percent from January to February, and it's just now starting to improve, but not nearly fast enough. I think that's a little bit of a indicator for what we can expect for the US economy for the next quarter or so.

And, you know, is a-- is it earnings-- You know, the consensus earning's at $165 right now. That's probably not anywhere close to being correct. You know, I think the market as it stands today is pricing in about $140, $145 of earnings, and it could go lower than that. So in these times, the visibility is really, really low, and I think you just have to kind of rely on, depending on what your investment horizon is, you know, some sort of risk management philosophy.

MYLES UDLAND: Well, and so Chris, when you watch the market move with this kind of speed-- I mean, I guess, you know, the VIX is now in the high 60s. It was in the 80s only a couple sessions ago. Are you compelled to do anything, or do you just feel-- Like, do you just kind of hunker down and sit there, and if you had any, you know, long, long term, like, you know, limit down kind of buy situations out there, let those ride? I mean, or do you just kind of watch the tape and maybe wait for a moment in the future to make any adjustments?

CHRIS KONSTANTINOS: Yeah. I think the thing you have to do is, you have to ask yourself as an investor, how soon do I need this principal back? If the answer is, I have to have at least my principal back in seven years or under, especially if you're talking about five years or under, I think that you have to set technical risk management stocks, and you have to honor them, even in a-- you know, even in a waterfall selling type of environment.

However-- and I think this is where your question is going-- for most of the people watching this, I suspect, you have an investment horizon that's longer than that. And, you know, we run portfolios that are also, you know, 7 to 10 and 10 years-plus in terms of the horizon, and there, frankly, we're trying to figure out, when the dust settles, what we're going to want to allocate into.

We have some elevated levels of cash in our longer-horizon portfolios, and we've already done a little bit of that recently where we've sold some of the things that we think are structurally impaired, even if the economy gets back on track quickly. And we're-- we're looking into, you know, areas that we think structurally will benefit from what's going on right now and had tailwinds before this was happening and will continue to have tailwinds afterwards.

And think I you have to be sharpening up your buy list if you have a longer investment horizon. You know, and basically that's-- that's essentially what we're doing right now. So it's kind of bifurcated advice depending on how quickly you need your money back.

MYLES UDLAND: All right. Chris Konstantinos with RiverFront Investment Group. Thanks so much for the time, and we'll talk to you soon.