Liz I want to start with you because you've got
a new note out today that really takes a focus
on the geopolitical tension that we're seeing specifically Russia's invasion
of Ukraine now entering a second week, the humanitarian
toll is great here. And certainly that's something that
we're thinking about a lot. This that being said
though, this is a show for retail investors and
I'm wondering what your concerns are when it comes to
market impact as the conflict continues to go on.
Right? Well, whenever we have a geopolitical shock
like this, what you have to think about is
could it become contagious if it's not happening in our
borders, could it become contagious to major economies around
the globe, including the U. S. And
the short answer to that is yes, of course
it could become contagious. And then you have to
look under the surface at what are the different drivers
and what are the different pieces of it that could
drive that contagion. So the biggest one in that
note that I outlined is oil and oil prices.
And just the huge run up that we've seen in
prices and now look, it's not the price itself
of oil that becomes an issue. It's the idea
that as it rises, it drives inflation which drives
Fed policy which then starts to drive jitters in the
market and that's how it bleeds into sentiment and investor
behavior. So just one quick historical anecdote if you
look at what happened in March of 2012, Oil
hit$125 a barrel that was absent a recession.
So we did not have a recession over that period
, but oil hit that high level because of supply
concerns. Obviously we're seeing similar supply concerns right now
. Out of Russia, what happened later in the
year is that the price came back down because global
growth slowed down, demand came down. I am
hopeful that that will be the case this year as
well. And we avert a recession and things are
much calmer in 6 to 9 months time and Christine
the volatility has been so tremendous over the past two
weeks, two weeks we were talking about stocks broadly
higher yesterday today, of course it's a complete 1
80. You have stocks across indexes Lower. I
mean, how do you manage that if you're putting
together a portfolio? Do you find safety in the
60 40 mix that we've been hearing about for decades
or does this require a little bit of engineering?
Well, I do think it depends on life's stage
. So younger investors should probably have a higher equity
allocation than 60%. We have seen the 60-40 portfolio
mix be close to unassailable over the past decade.
It's been pretty hard to beat. Um I would
say that the cohort that should be especially mindful of
their portfolios allocations with respect to current volatility would be
folks who are In their 50s, early 60s looking
upon retirement, we know that investors natural tendency is
to be kind of inert with their portfolios to not
really make any changes. I would say for that
cohort. One of the risk factors is that U
. S. Stocks were not inexpensive coming into this
latest turmoil. So for investors who hadn't de risked
their portfolios for some time, they're probably running with
higher equity allocations. That might make sense given their
life stage. So even though we have had some
volatility, I don't think it's too late To take
some equity risk off the table if you are approaching
the point in your life where you're getting close to
drawing upon network. What about Christine though, for
people who are earlier on in their investment lives,
people who have just gotten into markets over the last
couple of years and really are trying to build their
portfolio for the long term. Should there be 100%
equities right now? Well, I think that they
should be pretty close to 100% equities because think about
the raw materials for bond returns over the next decade
, they're probably not great because starting yields are a
good predictor of what bond investors are apt to earn
. But I also know that many young investors do
have shorter term goals. They might want to pay
for a wedding or buy a home. And so
those funds should absolutely not be in stocks. But
one point I would make for investors with their long
term portfolios is that thinking Global makes all the sense
in the world because the non US component of the
market is relatively inexpensive. So I think that younger
investors should be pretty close to the global market cap
in terms of their non US exposure, That would
mean something like 45% non us, most us investors
, I talked to do not have that much non
us exposure, but I think it definitely would set
their portfolios up for better returns because valuations are lower
there. Well, Liz I'd love to hear your
thoughts on that. You know, whether investors should
be looking around the globe for opportunities or whether they
should stick to US stocks, which have been the
Outperformer for several years now. Yeah, well I
mean they have been the Outperformer for several years.
It's it's sort of like flipping a coin. Obviously
there's no guarantee of what you're gonna get, but
if you've gotten heads four times in a row,
chances are tales are coming right. So it's true
that valuations are more attractive outside the U. S
. I actually started the year in my outlook and
in a lot of commentary talking about the idea that
there could be a revival in international investing this year
and that I think europe had a great comeback story
behind it. Unfortunately, this geopolitical event puts a
pause button on that, but it's a pause button
, not a cancel button and I think we do
have to wait out some of the friction here because
europe is so much more exposed To Russia, both
on an oil basis, 60% of Russia's exports in
oil do go to europe and it's exposed on a
banking basis, financial system basis. So I think
we do have to wait that out a little bit
, but I like the idea of international investing.
I would stick with international, developed europe and developed
Asia. Okay, so maybe a pause. Their
evaluations are attractive overseas though. And I want to
talk about us stock valuations. This is something that
you and I were talking about last week that if
you look at the S&P 500, if you look
at the NASDAQ 100, some of the ratios,
their evaluation are back to pre pandemic levels. Is
that a buying opportunity or is some caution warranted?
At least in the short term? I think it's
encouraging because for so long all we talked about was
that pe ratios were so far above their five and
10 year averages. Now we can stop talking about
that, right? We've got valuations that are back
down close to their five year averages. Things don't
feel as frothy. We've had a really big flush
this year already and it brought valuations back down to
a level that they're not posing this outsize risks to
the market Because they don't feel so toppy now.
Is that a buying opportunity? That's not something that
I would answer in a broad, sweeping statement.
I think 2022 is a year where you don't necessarily
want to put broad market beta on anymore. You
want to be choosy about your sectors. You want
to be choosy about the names that you're in now
. I came into the year really positive on cyclicals
and I remain positive on things like financials, And
I do think that financials can still have a nice
year, but also remain positive on health care.
And that's a thematic plan. Just the innovation in
healthcare and the things that are going to come for
the next 2-3 years.