Why we're bullish on the future
Historically, periods of market turmoil have been followed by economic revival. It's time, says our Chief Investment Office, to create a plan to invest in a potential new era of prosperity ahead.
"You can't see the forest for the trees" has new relevance for investors today, says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. Long-term prospects for the U.S. economy and markets, he believes, may be brighter than current headlines indicate. In fact, today's turbulence is likely the prelude to a new wave of innovation and prosperity. That's the case made in a recent report from the Chief Investment Office (CIO), "
Seeing the Forest for the Trees: Investing for the Future (PDF)."
"In a tumultuous investing environment, sometimes the hardest thing is to look beyond the present and plan for the future," says Hyzy. "But focusing just on daily market fluctuations or interest rate hikes could mean missing larger opportunities that are already underway."
In a tumultuous investing environment, sometimes the hardest thing is to look beyond the present and plan for the future.
— Chris Hyzy,
Chief Investment Officer,
Merrill and Bank of America Private Bank
Take heart from history
"The current investment environment is full of unknowns, from inflation to pandemic aftershocks and military conflict in the heart of Europe," Hyzy says. "Yet history shows that economies and markets have typically flourished in the aftermath of extreme turbulence."
Case in point: "World War I and the Spanish Flu gave way to the 1920s — a decade marked by major economic advances and annualized equity returns of more than 21%Footnote 1," he says. Strong periods of growth also followed the Great Depression and World War II, 1970s stagflation and the global financial crisis of 2008.
Maintaining a disciplined, longer-term approach to investing will perhaps be more important now than ever before.
— Chris Hyzy,
Chief Investment Officer,
Merrill and Bank of America Private Bank
History likewise supports the wisdom of long-term investing. Data shows that since 1929, the chance of a stock investment losing value on a single day stands at 46%. "But over 10 years, the probability drops to 6%,"Footnote 2 notes Hyzy. "Given today's episodic volatility, maintaining a disciplined, longer-term approach to investing will perhaps be more important now than ever before," he says.
Source: S&P 500; Bloomberg; BofA Global Research. Data as of March 31, 2022. Data reflects probability of negative equity returns going back to 1929 based on S&P 500 performance.
Past performance does not guarantee future results. It is not possible to invest in an index.
Look for tomorrow's potential growth opportunities today
While current challenges and crises create uncertainty and risk, they're also accelerating some world-changing forces that may be the foundation for another long-term bull market for equities, Hyzy suggests. Below he highlights some promising areas to consider now.
Digitalization. Propelled by the pandemic and boosted by greater global connectivity, "the digital economy has shifted into overdrive," Hyzy says. You can see signs of this shift in the proliferation of digital payment options and the staying power of remote work. "The need for investment in next-generation 5G telecommunications infrastructure, cloud computing and artificial intelligence will only accelerate."
Promising areas: Technology, communication services, consumer discretionary and healthcare.
Healthcare spending. The pandemic revealed global capacity shortages and the need to prepare for future emergencies. And aging populations continue to create greater demand. "We expect spending on healthcare infrastructure to increase globally as medical service providers look to build demand-surge capacity for diagnosis, treatment and monitoring," Hyzy says.
Promising areas: Medical equipment, healthcare facilities, advanced drug development, telehealth and biosecurity (aimed at mitigating biological threats from pathogens).
Automation. "The localization of supply chains, chronic labor shortages and rising labor costs have all accelerated the pace of automation in manufacturing and services," Hyzy says. As one example, cashierless stores are already on the rise. And 3D printing is revolutionizing manufacturing.
Promising areas: Electrical equipment and instruments, application software, artificial intelligence and communication services.
Climate change and the transition to a green future. The Ukraine conflict has delayed the global drive towards renewable energy as countries scramble for short-term energy supplies. "But this only underscores the planet's large reliance on fossil fuels," Hyzy says. "Policy makers are redoubling their efforts to promote and secure renewable energy." For example, the Inflation Reduction Act of 2022 earmarks $369 billion for clean energy, aimed at helping the U.S. reduce greenhouse gasses by 40% below 2005 levels by 2030.Footnote 3
Promising areas: Solar and wind, electric vehicles and related infrastructure, including industrials, materials, utilities, transportation and energy.
Think longer term
Planning for the future doesn't mean ignoring current market conditions, Hyzy notes. He suggests considering
incremental adjustments to help position your portfolio for volatility, which is likely to continue for the next several months. But don't let daily events dictate your broader strategy or cause you to make sudden decisions, he advises.
Instead, think longer term and consider the opportunities emerging as the economy resets, Hyzy says. "Despite the tall list of short-term unknowns, we believe the future is bullish. Now's a good time to develop a plan and invest for the future."
Footnote 1 Chief Investment Office; Bloomberg. Data as of August 2022. *Keynesian economics are the various macroeconomic theories and models of how aggregate demand strongly influences economic output and inflation. **Dow Jones Industrial Average Index price return. ***S&P 500 Index price return. 1920-1929 price peak.
Footnote 2 S&P 500; Bloomberg; BofA Global Research. Data as of March 31, 2022. Data reflects probability of negative equity returns going back to 1929 based on S&P 500 performance.
Footnote 3 Senate.gov, "Summary: The Inflation Reduction Act of 2022," Updated August 11, 2022.
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