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How investors can weather this ‘unique period’ in the stock market: Strategist

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Citi U.S. Wealth Management Head of Investment Strategy Shawn Snyder joins Yahoo Finance Live to discuss expectations for the upcoming FOMC meeting, the possibility for a 75 basis point rate hike, and the outlook for markets.

Video Transcript

[MUSIC PLAYING]

- Welcome back to the Yahoo Finance Live this morning, everyone. Reports of a possible 75-basis point hike precede the June Fed meeting, which kicks off today. Our next guest joins us to break down what it could mean for investors and their long-term goals.

Shawn Snyder, who is the Citi US Wealth Management Head of Investment Strategy. And Shawn, you have historically said, why are we betting against the Fed? And the strategy here, what would you be telling investors going into this meeting?

SHAWN SNYDER: Well, listen. There's a few things that you can do in this type of environment. And it's a difficult environment, right? Because we thought we were going to get the roaring 20s. And we did get roaring 2021 when we saw a high period of growth-- a 5.5% growth. And now it's declining down to about 2%, which is natural, because of this massive fiscal stimulus and monetary stimulus is wearing off.

And then on top of that, we have the Central Bank essentially tightening into a slowdown. So we have this period-- and I think a rather unique period-- where bond yields are rising while stocks are falling. And it's making for a very difficult environment for investors, particularly with this inflationary backdrop. But there are some things that you can do.

You can buy natural resource stocks. That's one of the better ways to hedge against price inflation in food and energy. You can also look for more quality-type companies with strong balance sheets. Dividend growers, they've been performing better than the broader market. And there's a few different types of scenarios like that you can do.

I'd really focus on quality and kind of defensive positioning here until we get more clarity on what the future is going to look like.

JULIE HYMAN: Hey, Shawn. It's Julie here. It's great to have sort of actionable ideas in this environment where there's a lot of fear out there. And on the plus side, with this messaging that the Fed is going to raise by 75-basis points, there's this message that they're attacking inflation. On the flip side, it would seem to raise the risk of a so-called hard landing. How are you thinking about threading that needle on the part of the Fed?

SHAWN SNYDER: Well, they're in a difficult position, right? And you know, I think panic is not a good strategy for investors. And I honestly think panic is not a good strategy for the Federal Reserve either. So I know there's this discussion that they'll raise by 75-basis points tomorrow. And indeed, they might.

But we've also heard Fed Chair Powell say in the past that he likes to work through expectations. They want to avoid adding uncertainty. He's mentioned that several times in the past. And they've been pretty clear that they're kind of headed towards a steady state here-- 50-basis point rate hikes in the next two meetings. Then, maybe they reassess. Possibly, go another 50 in September.

They're also starting on a pretty steady state for their balance sheet. So personally, I would be a bit surprised if all of a sudden they unwind what they said before and they start to react to what the market is pricing in. And the other thing I would say about inflation is we did get a hot inflation print last Friday. It was 0.1% higher than it was in March. So up from 8.5% to 8.6%.

But if you look underneath the hood, it was a little bit better. So I know it's hard to exclude things like food, energy and shelter because those are the things that we use on a daily basis, right? And that's a very real world thing. But if you exclude those, well then inflation has actually been one percentage point lower than it was in February.

Core inflation has fallen from 6.5% to 6%. So underneath the hood, there are some trends that the Fed may actually appreciate. So I don't want to completely buy in to this notion that, oh my God, the Fed is going to panic. They feel like they're behind the curve and they have to do everything they possibly can. I still think we might see a steady state from them.

And that might actually lead to some sort of relief rally tomorrow if that happens.

BRIAN SOZZI: Shawn, I have some friends. I would characterize them as average working class folks. They're down 50% to 60% on their portfolio. And when they talk to me, they sound panicked. They do not know what to do next. And I don't have an answer for them. What should they do? What do you tell the panicked investor right now?

SHAWN SNYDER: Well, listen. If you're down 50% to 60% it's probably because you're invested in some of the riskier assets, like the technology stocks. But what you really have to do in this environment is you have to have a focus on your long-term goals, right?

So if you think about where the NASDAQ is down year-to-date, maybe it's down 30% or so. I haven't checked it just in the last day or two. But let's think about where it is from March 9, 2009, which is the height of the global financial crisis, when no one wanted to invest in stocks at all. Well, the NASDAQ is up 756% since that day.

Where is it from the bottom of the COVID crisis in March 23, 2020? Well, it's still up 50 some perfect. So you have to put this recent sell-off into context. We had a very strong run in a lot of assets. And so, yes, it is down 50%-60%. That is very painful.

But if you focus on the long-term, equity markets tend to overcome these crises. We got past the global financial crisis. We got past COVID. We will eventually get past this as well.

So if you have a longer time horizon, I would not panic here. I would be defensive for a while, but I certainly would not exit out of positions. In the long run, you tend to hurt your returns.

And I would also say that if you look back and if you simply miss the 20 best days of the market because you exit, well then your annual return over the last, say, 20 years or so goes from 10.8% down to 6.3%. So missing those days is really important. You want to try to stay invested and just weather the storm even though it is difficult.