After a ripping first half of the year that was somewhat overshadowed by geopolitical uncertainty and the puzzle of sustained record lows in volatility, we asked several influential advisors what their concerns and expectations are for the second half of the year. They had a variety of responses.
Ben Carlson, Director of Institutional Asset Management, Ritholtz Wealth Management; NYC
One of the things we’ve been touching on a lot lately is to remind people that losses in the stock market are kind of a feature and not a bug.
The fact that we haven’t had many in the past 12 months or so isn’t something we should expect to continue. One of the stats we’ve shared with clients and on some of our websites is that, since 1950, the S&P 500 has averaged a loss of roughly 13.5% per year during a calendar year.
So even when the market finishes up, you can expect to see a double-digit drawdown a majority of the time in the markets. So [investors] should not get too complacent.
In terms of the stock market, the low volatility we’ve had isn’t something that’ll stick around forever. Losses and [the end of] low volatility aren’t something you can guess about, but they will happen at some point.
Robert Meyer, Chief Investment Officer, Ibis Capital; San Diego
I’m most concerned about tax reform in the U.S. The market has gone up on the tail wind of expectations that tax reform would relax consumers and help corporations, but I’m not sure we’re going to see tax reform in 2017. The market isn’t pricing in a delay in tax reform, and if we get a delay, can we even get it done at all with midterm elections next year? I’m not so sure. If it doesn’t happen, market risk rises.
Historically speaking, just about every year in the past 30 years, we’ve seen the market pull back some 5% at some point, and we haven’t yet seen that type of action this year. We could see a correction in the coming months, and a pickup in volatility due to the uncertain future of tax reform. That makes me apprehensive about U.S. equities going forward.
We’re going to be pivoting toward international stocks, adding Europe, U.K., Japan and Australia as a relative value play. We’ve owned emerging market equities since late last year due to attractive valuations already. We see some opportunity in the international space, but the reality is, this has been a nice year for equity returns, and there’s nothing that’s truly cheap right now.
Once we get some volatility back, we might see some opportunities pop up for some tactical moves. Otherwise, we tend to think more strategically.