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Transcript
C IO REPORTS
Investment Insights
From the desk of Ashvin Chhabra, Chief Investment Officer, Merrill Lynch Wealth Management
A Turbulent Week
Most asset classes have fallen considerably
from their recent highs
Recent Peak-to-Trough Drawdowns
After a rough week, markets rallied strongly today. Equities in the
U.S. and Europe rebounded, and oil prices bounced back from
multi-year lows. After disappointing retail sales and producer prices
earlier in the week drew concerns that economic growth in the U.S.
was faltering, strong data in the past two days reassured investors
that the economy is improving.
n
Consumer confidence in the U.S. rose to the highest level in
released today rose to 86.4, above expectations. Clearly lower
gasoline prices and steady job creation have kept consumer
spirits high.
n
European
Equities
Emerging
Market
Equities Small Caps
S&P 500
-5%
High Yield
-3.2%
-7.3%
-12.2%
-15%
-11.6%
-10.9%
-19.2%
-22.7%
Source: Bloomberg, MLWM Investment Management & Guidance.
Data as of October 16, 2014. Measures: S&P 500 Energy sector, Euro Stoxx 50, MSCI
Emerging Markets, Russell 2000, Merrill Lynch High Yield Master index. Performance
measured by total return. Past performance is not indicative of future returns.
Structural issues in both Europe and Asia remain and will likely
continue to cause anxiety. We expect investors to keep a sharp eye
Housing starts climbed above an annualized rate of one million in
on these regions, and remain wary of any hint of a carryover to U.S.
September. A drop in mortgage rates should provide a boost to
economic activity. However, we maintain our base case of a slow
homebuyers and construction companies, enabling the industry
but steady recovery, with the U.S. remaining the engine of growth.
to remain a critical driver of the U.S. economy.
n
Energy
Stocks
-10%
-25%
seven years. The University of Michigan’s sentiment index
n
0%
Brent Crude
Oil
-20%
Developments:
OCTOBER 17, 2014
Expectations that monetary policy will remain accommodative
Key Takeaways:
Investors have been richly rewarded for riding the rally since the
have also helped raise investor sentiment. Comments from
lows of the Great Recession. The recent correction has been harsh,
regional Federal Reserve (Fed) President James Bullard yesterday
but within the context of the secular bull market, not out of line
sparked a rally in U.S. equities, which continued through today.
with historical standards. The S&P 500 has risen by more than
European equities and periphery sovereign bonds (such as
200% since 2009, and this marks only the third pullback of more
Italy, Spain and Greece) also rallied today on renewed hopes of
than 5% since 2012.
quantitative easing (QE) by the European Central Bank. There
Our advice remains to stay invested despite expectations of greater
are also increased expectations that policy makers in China and
volatility. For those fortunate enough to have been under-allocated to
Japan will take further stimulus measures to stem a slowdown in
the market, corrections such as these present a good entry point.
those countries.
BofAML Global Research sees opportunities in a few areas amid
We believe, however, that volatility has returned to the financial
this selloff. After taking a particularly bad beating, economically-
markets and we expect to see such periodic corrections especially
sensitive sectors such as Industrials and Technology should resume
as the Fed normalizes interest rates (see Exhibit).
their cyclical outperformance. Dividend growth stocks offer yield
The primary cause of concern has been disappointing data,
and can provide leverage to a growing economy. Small caps
primarily from Europe. Germany’s industrial production and export
have pulled back by more than 10% since August, narrowing the
numbers have come in below expectations, and Euro zone inflation
valuation gap with large caps. While large caps tend to do better
remains at dangerously low levels.
during market volatility, select higher-quality small caps have
become more attractive for investors with a greater risk tolerance.
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(MLPF&S), a registered broker-dealer and member SIPC, and other subsidiaries of Bank of America Corporation (BofA Corp.).
Investment products offered through MLPF&S:
Are Not FDIC Insured
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© 2014 Bank of America Corporation. All rights reserved.
May Lose Value
This report has been issued and prepared by Investment Management & Guidance and the Chief Investment Office of the Private Banking & Investment Group and is not a publication of
BofA Merrill Lynch Global Research. This publication has been prepared for use with Merrill Lynch clients not residing in the UK and may not be redistributed, retransmitted or disclosed, in
whole or in part, or in any form or manner, without the express written consent of Merrill Lynch. Any unauthorized use or disclosure is prohibited. The information herein was obtained from
various sources that we deem reliable, but we do not guarantee its accuracy.
This report provides general information only. Neither the information nor any views expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other
investment or any options, futures or derivatives related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account
the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the
appropriateness of investing in any securities, other investment or investment strategies discussed in this report and should understand that statements regarding future prospects may
not be realized. Investors should note that income from securities or other investments, if any, may fluctuate and that price or value of such securities and investments may rise or fall.
Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. Neither Merrill Lynch nor any of its affiliates or
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review for changes in your individual circumstances, including changes in market conditions and your financial ability to continue purchases.
Asset allocation and diversification do not assure a profit or protect against a loss during declining markets.
The investments discussed have varying degrees of risk. Some of the risks involved with equities include the possibility that the value of the stocks may fluctuate in response
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Investments in high-yield bonds may be subject to greater market fluctuations and risk of loss of income and principal than securities in higher rated categories. Investments
in foreign securities involve special risks, including foreign currency risk and the possibility of substantial volatility due to adverse political, economic or other developments.
These risks are magnified for investments made in emerging markets. Investments in a certain industry or sector may pose additional risk due to lack of diversification and
sector concentration. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real
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