Portfolio strategist: 'Taking a longer term horizon... is really the right move for investors'
In This Article:
PIMCO Portfolio Manager Erin Browne joins Yahoo Finance Live to discuss the U.S. stock market, volatility, the Fed hiking interest rates, and secular trends.
Video Transcript
JULIE HYMAN: It has been a rockier start to 2022, as we have seen. Tech stocks, in particular, software stocks, in particular, as our Jared Blikre was just outlining, on the decline. Oil prices have been on the rise. So what does this tell us, if anything, about how the rest of the year is going to go? Erin Browne is with us now, PIMCO portfolio manager.
And Erin, you wrote in a recent note about this, so-called fat tail risks, that are out there. In other words, that there are some possibilities of pretty divergent outcomes for markets, for the economy, this year. Given that we've already come through a couple of years where there were pretty divergent possible outcomes, how do you game those out, sort of post the lessons of 2020 and 2021?
ERIN BROWNE: First, I think it's important as a starting point, to look at what the growth backdrop is and what your base case is likely to be. And we're still in an environment where growth is still going to be pretty good. And while we're certainly decelerating from a exceptionally strong backdrop that we experienced last year, the rest of 2022, from a growth perspective, is still going to be very supportive for stocks.
That said, as we're entering into an environment with obviously higher inflation, where the Fed is going to start to really raise rates and start to remove a lot of the accommodation that's been in the market, that does pose these left tail risks that we haven't experienced, certainly over the last couple of years. And so I think it's going to be much more of a dynamic trading environment going forward in 2022, than what we've seen, certainly over the last 18 to 24 months.
And so for that, I think it means investors have to be more active, a little bit more disciplined, in terms of taking their profits and also cutting losses in a much more active manner.
BRIAN SOZZI: Erin, when you say dynamic, do you mean we're at the risk of seeing some more corrections in the markets this year as the Fed tries to get out in front of inflation?
ERIN BROWNE: Yes. I definitely think that we're going to experience more volatility in 2022 than what we've seen, certainly over the last year, but even going back over the last decade. We started to see in 2021, volatility creep up. I think we're going to see volatility creep up even further in 2022. And as we reach these sort of transition points in the market, and the biggest transition is going to be the Fed starting to hike rates, that typically means that you're going to have bigger corrections throughout the sort of path of what I think is where we're going to end the year, higher in terms of markets, but we're going to have bigger corrections along the way.