City National Rochdale | May 31, 2022

Investing During Increased Volatility

While investors have been buffeted by one of the worst annual first quarter starts in history, underlying positive fundamentals and an agile approach to risk management can manage the challenges ahead, according to City National Rochdale's investment leaders.

Managers at City National Rochdale addressed the topic of investing during turbulent times during a recent webinar. Managers at City National Rochdale, the bank's investment advisory organization, addressed the topic of investing during turbulent times during a recent webinar. The headwinds of rising interest rates, higher inflation and increased global uncertainty are impacting the U.S. economy, corporate profits and valuations. While risks have grown and greater clarity is needed on the inflation outlook before markets can find a durable bottom, the managers believe that positive fundamentals in the U.S. economy will provide support over time.

While City National Rochdale CEO Garrett D'Alessandro said that GDP growth forecasts were revised downward to 2.5% to 3.5% for 2022, a recession is not likely in 2022 nor during the first half of 2023, according to Rochdale forecasts. Inflation pressure is anticipated to moderate from 5% to 6% during the second half of 2022 . Corporate profits are anticipated to stay strong at 5% to 11% by year's end.

“Market signals indicate that now is the time to own the strongest U.S. companies in your portfolio, whether for growth or income equity," said D'Alessandro. “While we're generally cautious in the near-term, we want everybody to understand this is a normal part of the process and that this is the time to stay on with your long-term strategy."

Uncertainty regarding the economy's direction is one of the challenges facing investors today. There are three possible scenarios for economic growth, with Rochdale's team estimating a 30% chance of normal growth, 40% chance of slow growth, and a 30% chance of mild recession.

“The Fed doesn't know what will happen, no firm on Wall Street knows this, and this is one of the most unpredictable, uncertain scenarios we've faced in a generation," said D'Alessandro.

While City National Rochdale's latest Speedometer report shows enough strength to sustain the economy for the next 12 months, the investment team is watching geopolitical events and the U.S. Federal Reserve carefully for their impacts on economic forecasting and the markets.

Positive indicators include the U.S. economic outlook, consumer sentiment, disposable personal income, the labor market, consumer spending, fiscal policy, the business outlook, leading indexes, corporate profit growth and credit availability. In addition, a variety of fundamentals are at peak levels, according to data from Bloomberg, such as real GDP, corporate profits, household net worth and stock prices.

TIGHTENING FED POLICY & RISING INTEREST RATES

“Never before in the history of the United States has the strength of the economy and the levels of economic achievement been this robust," said D'Alessandro. “So, when you have an economy this good, it can handle these interest rate increases."

While numerous factors are driving inflation, including supply chain bottlenecks, the shift from goods to services, the impact of the stimulus, reduced labor supply and the Ukraine/Russia shock to the supply chain, some of those issues are easing.

D'Alessandro and the Rochdale team believe that stagflation is not a danger, but there is a chance it could occur due to the combination of low unemployment, rising inflation, and slower economic growth. But the political will to address inflation should reduce the elevated levels of inflation seen now by the end of the year.

“There's a clear, unambiguous disdain for inflation from the Biden administration and the Fed," said D'Alessandro. “We have confidence that the Fed understands the playbook and can execute the playbook to get inflation under control. What we don't know is how high they'll have to hike the rates and whether that will get us into a slow GDP economy or mild recession."

INVESTMENT OPPORTUNITIES IN A VOLATILE ENVIRONMENT

The U.S. 10-year Treasury yield is anticipated to end 2022 between 2.25% and 2.75%, according to data from Bloomberg, the Federal Funds Rate implied policy level and City National Rochdale research.

“It's not a foregone conclusion that a recession has to occur during a Fed tightening," said Rochdale's co-director of fixed income, Charles Luke. “The past few years have been highly irregular, and the process of normalization will be bumpy but welcome."

There are market opportunities for fixed-income investments, particularly for U.S. high yield corporate bonds and high yield municipal bonds. The lack of liquidity has pushed rates higher and underlying municipal fundamentals are positive, Luke added, citing data from Bloomberg. Tax-sensitive investors may want to investigate these opportunities with their advisors.

Some alternative investments, such as reinsurance, direct lending, capital leasing and structured credit — while less common — may be appealing for investors. Overall, these investments have higher return expectations but greater potential for volatility than core fixed-income investments, according to Bloomberg data.

“While public markets are clearly volatile, we've seen some stability in some of the less talked about segments of our clients' portfolios," said City National Rochdale's director of investment solutions and research, Tom Ehrlein.

Rochdale takes a measured approach to alternative investments, looking for opportunities while mitigating risk for investors.

ELEVATED GLOBAL & GEOPOLITICAL UNCERTAINTY

While global economic activity is slowing, the U.S. is in the best position in the world economically. City National Rochdale remains underweight on European equities because of the risks of recession and stagnation.

Among the issues carefully watched by Rochdale's team are the war in Ukraine and its impact on inflation and supply chain issues. Europe is more vulnerable to energy and food shock, with higher gas prices than in the U.S.

Rochdale's investment managers are neutral on equities, reducing Asian exposure. They are watching Asia carefully given China's drastic COVID-19 policy that has slowed its economy and has triggered increased financial volatility.

INVESTING DURING INCREASED MARKET VOLATILITY

While investors are nervous about market volatility, corrections are part of normal market activity. Rochdale advises its clients to stay the course, even during highly volatile periods.

Despite higher interest rates and market volatility, stocks continue to be more attractive than bonds.

Overall, Rochdale's managers remain cautious in the near term and advise their clients to anticipate modest returns with increased volatility across many asset classes in the longer term.

Over the long-term, Rochdale's managers are watching trends to see if there's a paradigm shift to higher inflation for a longer period. Each moment in history produces its own unique optimal asset allocation for risk and returns. The investment team at Rochdale continues to monitor the challenges and opportunities in today's economic environment to balance risks and rewards for their clients.

REVIEW YOUR PORTFOLIO WITH YOUR WEALTH PLANNERS TODAY

City National encourages you to review your investment portfolio with your advisor. Contact our financial professionals today to get help with your wealth planning needs.

Investing During Increased Volatility

Webinar | May 25, 2022

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Important Disclosures

The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. This presentation is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein.

The material contains forward-looking statements regarding intent, beliefs, or current expectations which are used for informational purposes only. Readers are cautioned that such forward-looking statements are not a guarantee of future performance, involve risks and uncertainties, and actual results may differ materially from those statements as a result of various factors. The views expressed are also subject to change based on market and other conditions. Furthermore, the opinions and information presented do not involve the rendering of personalized investment, financial, legal, or tax advice.

Investments in below-investment-grade debt securities which are usually called “high-yield” or “junk bonds,” are typically in weaker financial health and such securities can be harder to value and sell and their prices can be more volatile than more highly rated securities. While these securities generally have higher rates of interest, they also involve greater risk of default than do securities of a higher-quality rating.

Private investments often engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be highly illiquid, are not required to provide periodic pricing or valuation information to investors, and may involve complex tax structures and delays in distributing important tax information.

Investing in international markets carries risks such as currency fluctuation, regulatory risks, economic and political instability. Emerging markets involve heightened risks related to the same factors as well as increased volatility, lower trading volume, and less liquidity. Emerging markets can have greater custodial and operational risks, and less developed legal and accounting systems than developed markets.

Alternative investments are speculative, may entail substantial risks, offer limited or no liquidity and may not be suitable for all investors.

Certain information has been provided by third-party sources and, although believed to be reliable, it has not been independently verified and its accuracy or completeness cannot be guaranteed

Adjustments to portfolio strategies are based on guidelines set forth by City National Rochdale’s Asset Allocation Committee. Individual client allocations among strategies, asset classes, portfolio weightings may be higher or lower given differences in portfolio holdings, client imposed restrictions, and/or the customized strategy implemented by each client’s portfolio manager. These differences may have a material impact on individual client’s performance returns.

Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as on the date of this document and are subject to change.

This material is available to advisory and sub-advised clients, as well as financial professionals working with City National Rochdale, a registered investment advisor and a wholly-owned subsidiary of City National Bank.

Indices are unmanaged and one cannot invest directly in an index. Index returns do not reflect a deduction for fees or expenses.

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results.

This material is available to advisory and sub-advised clients, as well as financial professionals working with City National Rochdale, a registered investment advisor and a wholly-owned subsidiary of City National Bank.

Indices are unmanaged and one cannot invest directly in an index. Index returns do not reflect a deduction for fees or expenses.

S&P 500 Index: The S&P 500 Index, or Standard & Poor’s 500 Index, is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. It is not an exact list of the top 500 U.S. companies by market cap because there are other criteria that the index includes.

Muni Bond: A municipal bond is a debt security issued by a state, municipality or county to finance its capital expenditures, including the construction of highways, bridges or schools. These bonds can be thought of as loans that investors make to local governments.

Bloomberg Barclays U.S. Corporate High Yield Bond Index: measures the USD denominated, high-yield, fixed-rate corporate bond market.

Dow Jones Select Dividend Index: The Dow Jones U.S. Select Dividend Index looks to target 100 dividend-paying stocks screened for factors that include the dividend growth rate, the dividend payout ratio and the trading volume. The components are then weighted by the dividend yield.

The Intercontinental Exchange (ICE): The Intercontinental Exchange (ICE) is an American company that owns and operates financial and commodity marketplaces and exchanges.

The Bloomberg Aggregate Bond Index: "the Agg" is a broad-based fixed-income index used by bond traders and the managers of mutual funds and exchange- traded funds (ETFs) as a benchmark to measure their relative performance.

U.S. Treasury Yield Curve: refers to a line chart that depicts the yields of short-term Treasury bills compared to the yields of long-term Treasury notes and bonds.

Consumer Price Index (CPI): is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care.

Bloomberg Barclays US Aggregate Bond Index: The Bloomberg Aggregate Bond Index or "the Agg" is a broad-based fixed-income index used by bond traders and the managers of mutual funds and exchange-traded funds (ETFs) as a benchmark to measure their relative performance.

MSCI Emerging Asia PE: The MSCI Emerging Markets Index is a selection of stocks that is designed to track the financial performance of key companies in fast- growing nations. It is one of a number of indexes created by MSCI Inc., formerly Morgan Stanley Capital International.

Global Equity Markets: a global market in which shares of companies are issued and traded, either through exchanges or over-the-counter markets.

The Commodity Research Bureau (CRB) Index acts as a representative indicator of today's global commodity markets. It measures the aggregated price direction of various commodity sectors.

An investment grade is a rating that signifies that a municipal or corporate bond presents a relatively low risk of default.

The Bloomberg Barclays Municipal High Yield (HY) Index is a flagship measure of US municipal tax -exempt high yield bond market.

This presentation is for general information and education only. City National makes no representations or warranties in respect of this presentation and is not responsible for the accuracy, completeness or content of information contained in this presentation. City National is not responsible for, and expressly disclaims all liability for, damages of any kind arising out of use, reference to, or reliance on any information contained in or from the site. The information in this presentation should not be used to obtain credit or for any other commercial purpose nor should it be construed as tax, accounting, regulatory or legal advice. Rules in the areas of law, tax and accounting are subject to change and open to varying interpretations and you should seek professional advice from your advisor. Nothing in this presentation should be construed as an offer, or solicitation of an offer, to buy or sell any financial instrument. It should not be relied upon as specific investment advice directed to the viewer's specific investment objectives. Any financial instrument discussed in this presentation may not be suitable for the viewer. Each viewer must make his or her own investment decision, using an independent advisor if prudent, based on his or her own investment objective and financial situation. Prices and availability of financial instruments are subject to change without notice. Financial instruments denominated in a foreign currency are subject to exchange rate risk in addition to the risk of the investment. City National Bank (and its clients or associated persons) may, at times, engage in transactions in a manner inconsistent with this presentation and, with respect to particular securities and financial instruments discussed, may buy from or sell to clients or others on a principal basis. Past performance is not necessarily an indication of future results.

The expected returns shown do not include fees for trading costs (e.g., commissions) or any fees charged by your financial advisor. Please speak to your financial advisor for a complete understanding of all fees.

City National Bank provides investment management services through its wholly owned subsidiary City National Rochdale, LLC, a registered investment advisor. Content from the May 25, 2022 presentation, "Market Update: Investing in Turbulent Times" is reprinted by permission from City National Rochdale.

City National (and its clients or associated persons) may, at times, engage in transactions in a manner inconsistent with this article and, with respect to particular securities and financial instruments discussed, may buy from or sell to clients or others on a principal basis. Past performance is not necessarily an indication of future results. This article may not be reproduced, distributed or further published by any person without the written consent of City National. Please cite source when quoting.

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