Market Volatility No Cause For Alarm

During major market moves, it’s natural for investors to question their investment strategy, but one of the benefits of professional management is decision-making based on facts, not emotions. Market volatility like this is normal and expected. And given that there is low recession risk, recent market events do not change any investment or portfolio allocation for our clients at this time. City National Rochdale’s 2018 Economic Outlook for the year is “Navigating the Global Cross Currents,” and that is what we are seeing play out. We fully expected a correction like this and are not alarmed because we see there is low risk of a recession ahead. Simply put, bear markets outside of recessions are rare.

Our position is to stay invested in and overweight U.S. growth, U.S. high dividend and income equities, and emerging markets Asia. We continue to stay overweight in non-investment grade credit. A correction like this can run further, but also provides an opportunity when stocks and non-investment grade bonds become attractively valued, to bring client portfolios closer to their long-term strategic objectives. We will look to deploy current cash positions to get clients invested back into their strategic asset classes.

There are always many reasons for a correction, but our decades of experience over many market cycles tells us there are justifications for it. One contributing factor was the impact of strong U.S. economic growth on rising interest rates. We think that after a quarter or two, growth will normalize and not cause interest rates to rise too fast or too high to trigger a recession.

Nothing has changed in our outlook for company earnings, or for the economic growth outlook, and none of the fundamentals have changed. So, when fundamentals have not changed, stock prices will correct when they get too far ahead, which was clearly the case after last year’s unsustainable 21.83% return and a 5.73% one-month return in the S&P 500.1 Our best advice is to rely on your long-term and tactical strategy being well-positioned for where we are in the economic expansion and focus on the long-term earning power of your investments.

In the meantime, your team at City National Rochdale will continue to monitor the market developments and make sure you continue to stay on track to reach your investment goals.