Markets haven't started to 'correct aggressively yet': TCW CEO

"We're a little bit more pessimistic about the global outlook", Katie Koch, TCW CEO, tells Yahoo Finance, saying she's "struck" by the upbeat sentiment at this year's Milken conference. Our team has been getting the economic hot take from executives and industry heavyweights of all stripes at the annual event in Beverly Hills. Attendees seem to have one theme in common: boundless optimism. This glass-half-full approach, or some might call it cognitive dissonance, seems to be the name of the game. Koch, however, sees a challenging macro environment ahead. "We're in the camp of [the Fed] having a medium to hard landing," she says. "I don't think the rest of the sentiment has caught up to that view."

Koch, who spent 20 years at Goldman Sachs' Asset Management Division, is no stranger to the changing economic tide, and the reaction of asset classes. "We're probably going to have more volatility and draw downs ahead," she says, as "the markets haven't started to correct aggressively yet".

Stocks have rallied so far this year, though not without some turbulence fueled by the banking crisis. "We can see a relatively sanguine expression that credit spreads haven't widened yet" she says, adding, "we haven't seen the Vix (VIX) broaden out a lot."

Brian Sozzi spoke to Koch at this year's Milken Conference.

Key Video Moments

00:00:05: Global outlook

00:00:20: Economic landing

00:01:00: What's driving the positivity

Video Transcript

KATIE KOCH: One of my main takeaways is that people look a little too happy for me here. We're a little bit more pessimistic about the global outlook. And I'm struck by the fact that I think sentiment is actually still relatively positive here. We're really looking at TCW for a macro environment that's going to be pretty challenging. And so we're in the camp of having a medium to hard landing.

And what I would say is that I don't think the rest of the sentiments caught up to that view. And that makes sense because in the markets, we can see a relatively sanguine expression that credit spreads haven't widened yet. We haven't seen the VIX broaden out a lot. And so my main message to you would be that our outlook is more negative going forward than probably consensus and more people need to catch up with us, which means that we're probably going to have more volatility and more drawdowns ahead of us.

BRIAN SOZZI: Thank you for keeping it real because that has been one of my takeaways so far from the conference. But on the positivity aspect, what is driving that?

KATIE KOCH: When-- our outlook? What's driving our outlook? Or what's--

BRIAN SOZZI: Well, why is everyone still so positive on markets when they see a lot of train wrecks coming right at them?

KATIE KOCH: Yeah. No, no, no, that's a good question. I mean, I think the main reason for that is that it's kind of correlated to the fact that the markets haven't really started to correct aggressively yet, number one. And number two, people understand that the Fed now has firepower to cut, if they need to, to support markets. And I think that gives people a kind of sense of confidence that things could be OK.