Disclaimer:
Please read important information at the end of this program. Recorded on 11/18/2024.
Lower Third:
Chris Hyzy
Chief Investment Officer
Merrill and Bank of America Private Bank
Chris Hyzy
Hello and welcome. In an era defined by shifting political landscapes, geopolitical tensions and evolving markets, uncertainty is inevitable. But it's also manageable. How can investors make sense of the pendulum swings between clarity and doubt in today's current environment? And what strategies can help you stay focused on your long-term financial goals? Joining me to explore these questions and more is Joe Quinlan, Head of Market Strategy for Merrill and Bank of America Private Bank.
Chris Hyzy
Joe, thanks for being here with me today.
Joe Quinlan
My pleasure. Thanks for having me.
Chris Hyzy
Let's talk geopolitical risk. Something that we've discussed now for decades. It feels like there's always something volatile going around. Potentially a little bit more volatile now. We've got the war in Ukraine, in Russia. We've got potential discussions, still, with China and Taiwan. We've got the conflicts throughout the Middle East. Unpack that for everyone about how do we think about it in the context of investing?
Lower third:
Joe Quinlan
Head of Market Strategy, Chief Investment Office
Merrill and Bank of America Private Bank
Joe Quinlan
Well, Chris, a lot to unpack there because each region of the world is under some geopolitical stress, but start with Europe and Ukraine.
We'll see how that plays out. We've got a new administration coming in saying, hopefully, bring some, a pause or a peace agreement. We'll see how that plays out. But even if we do have some type of peace ramp we get on in Europe to rebuild the munitions we've sent off in the last, say, 2 or 3 years, it's going to take the rest of the decade, which is another way of saying we're still bullish and constructive on large-cap defense contractors, for sure.
Joe Quinlan
The biggest call is in South China Sea. We'll see how that plays out. But what does that mean? It means a lot of pressure on commodities, rethinking global supply chains. But the key point though, Chris, I think we should drive home to our clients is that these geopolitical hotspots overseas, they're driving dollars back into the U.S. We're the safe haven, whether it's our real estate, our treasuries, our equities, you name it, corporate bonds.
Lower third:
Geopolitical hotspots drive dollars into the U.S.
Chris Hyzy
That's a good point about the dollar. We're at a potential five, maybe five and a half, decade high in the trade-weighted dollar. A lot of discussions as to the valuations in U.S. equities relative to overseas. But yet, the non-U.S. markets, the non-U.S. economies aren't nearly as innovative or diversified as the U.S. economy. How do we think about U.S. versus non-U.S. in the context of geopolitical risk and the valuations.
Joe Quinlan
The valuations — we're a growth story — United States. The rest of the world is more value. Think of it that way. We've talked about this. Our economy is just more dynamic. Technology, innovation, generative AI. It's amazing — we're pulling ahead — how much we're pulling ahead the rest of the world. We're halfway through this decade. We're 25% through the century.
Lower third:
U.S. is a growth story.
Joe Quinlan
And the U.S. economy is crushing it. But, you know, if we're going to drive AI, we're going to drive innovation. I think the U.S. continues to be that lead horse.
Chris Hyzy
You mentioned commodities before. You also mentioned so-called suppliers of of defense and defense and electronics, industrial side of the geopolitical equation. Dive in a little bit to the commodity side, any particular ones that you think have a tailwind to them, given infrastructure, given other things that we need to do?
Joe Quinlan
Of course, copper. I mean, it's the basics mineral.
Chris Hyzy
Everyone's talking about.
Lower third:
U.S. could see a nuclear renaissance.
Joe Quinlan
Everyone talks about, whether it's a grid here in the United States, but also uranium. The nuclear renaissance is pretty interesting. What's happening here in the United States? You've got a couple tech companies out there now becoming nuclear players because of the data centers.
Chris Hyzy
So nuclear, here to stay. Not just here to stay but here to potentially build again?
Joe Quinlan
And you have these big tent tech companies with the capital cash flow to bring us back into the nuclear capacity. So, it's not going to be top down.
Lower third:
Tech companies are driving the energy space.
Joe Quinlan
It's more bottoms up. It's, it's amazing what tech companies are doing in our energy space. They're pulling us forward.
Chris Hyzy
What are the big types of developments you think the corporate sector in the United States is going to try to advance?
Joe Quinlan
I think the biggest thing, first of all, they're all, we're always leveraging new technology first here in the United States, and people don't appreciate that. We're the innovative leaders because we take the risk, we got the reward, we got the venture capital. Our struct — our system — is is designed for risk and reward.
Chris Hyzy
Yeah.
Joe Quinlan
And we're seeing that play out. So, you know, whether it's the technology side with the new energy renewal addition, I think it's very exciting.
Lower third:
Technology innovation and energy renewal could be big areas for development.
Joe Quinlan
So, we small cap and large cap. Everyone's going to participate. So, and I do think the rest of the world is going to want to come to the United States and participate because we have the infrastructure, the human capital, lower electricity costs. We have and we have the largest consumer. We need to talk about the consumer. Our consumers account for 30% of global consumption, right.
Chris Hyzy
One of the major reasons why we're at premium valuations.
Joe Quinlan
Absolutely.
Chris Hyzy
Joe, we talked about opportunities all around the globe in the context of this unfolding world we are living in. We didn't really talk too much about managing around uncertainty. You want to unpack that a little bit? How do we manage around uncertainty from a portfolio strategy perspective?
Joe Quinlan
A couple issues there, Chris. Don't get hung up on the headlines. A lot of negativity. There's some real challenges out there in the world. But stay in the markets. You know, don't try to time it, own U.S. assets, be diversified. Remember there was a time where you just own equities and that was it because you had negative rates on —
Chris Hyzy
Right.
Joe Quinlan
— debt.
Lower third:
Don't get hung up on headlines. Stay in market and don't try to time it.
Joe Quinlan
That's behind us which is a nice thing. Normalizing interest rates. So, be diversified. Turn off the TV, read some good books and and just maintain that focus.
Chris Hyzy
Stay. Stay focused. Stay disciplined, stay diversified and then look for rebalancing opportunities.
Joe Quinlan
Exactly.
Chris Hyzy
Excellent. Thank you, Joe.
Joe Quinlan
Thank you.
Chris Hyzy
We hope this conversation has provided useful insights as you consider your strategy for the year ahead. Stay diversified. And if you work with an advisor, ask for their help in navigating what's next, both the risks and the opportunities. And check back frequently for more insights for 2025 and beyond.
Thanks for watching.
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Important Disclosures
The opinions expressed are as of the date of this video and are subject to change.
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[End of transcript]
"In an era defined by shifting political landscapes, geopolitical tensions and evolving markets, uncertainty is inevitable — but it's also manageable," says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank.
In the video above, Hyzy and Joe Quinlan, head of Market Strategy in the Chief Investment Office for Merrill and Bank of America Private Bank, talk about current geopolitical risks, potential emerging investment opportunities, and how investors can make informed decisions in today's unpredictable landscape.