Prudential Annuities Strategist: Market Pullback Could Help Longer Term
July 2, 2014 by John Weber
NEW YORK – Quincy Krosby, chief market strategist, Prudential Annuities, said sell-offs in months ahead could prepare investment markets for further improvements later in the coming year. Krosby spoke with A.M.BestTV at Prudential’s 2014 Midyear Global Markets and Economic Outlook, held in New York City.
View the video version of this interview at: http://www.ambest.com/v.asp?v=krosby614
Q: Quincy, what are some of the fears in the market today, if any?
A: The fears are, No. 1, we’re living in a period in which geopolitical risk seems to be grabbing the headlines. Normally, it’s contained. Normally, the market has a one- or two-day reaction. But if it intensifies, especially in the summer, where the volume is low, investors are on holiday, particularly in Europe and in the U.S., you could use it as an excuse to sell off.
Q: Do retail investors think that perhaps the market is being propped up by quantitative easing?
A: Certainly. There is a sense that the Federal Reserve had a historic role in the markets with quantitative easing. To be sure, in November of 2008, the Federal Reserve’s balance sheet was $800 billion. In January of this year, it was $4.3 trillion of bond buying, so of course the Fed had a role. The question has been, “How much of a role?” How much of the Federal Reserve buying has propped up the marketing versus fundamentals?
Q: Are the markets overvalued, in your opinion?
A: As long as you have liquidity in the market still provided by the Fed, still promised by the European Central Bank and to some degree Japan and earnings are actually rising, the market has found an equilibrium.
I can say that as the Federal Reserve reaches its expiration date in October when quantitative easing should end we’re going to have to see growth and earnings take the place of the Federal Reserve’s role in the markets.
Q: We’ve long heard about how important diversity is when it comes to retail investing. Is it more important now than ever?
A: Yes. Diversification is crucial now more than ever. Because what you have is a market that has benefited equities. They’ve done very well in fixed income. At the very beginning of quantitative easing, investors in gold did very well. Folks in equities just sat there passively.
You always have to have your portfolio diversified and protected to the downside to take advantage of the next move, where profit taking is going to take place and where allocation is going to pick up.
By being diversified you’re going to be there. You’re not going to have to wait until the top of a market in order to benefit. The benefits usually come at the very beginning and also as we get to the top of a particular asset class.
Q: With that in mind, what’s your outlook for the remainder of 2014 and even beyond?
A: For 2014, this may sound as if I’m qualifying this too much, but if we get a nice sell off in the summer or perhaps in September, October, it bodes well for the most important quarter for the stock market. That is the fourth quarter.
That would give us a nice lift for the fourth quarter, which typically is the best performing quarter. December, by the way, of the fourth quarter, is the best performing,
We do want to see the market pull back, allow investors who have said, “I don’t want to go in at what I think is the top of the market,” give them a chance to come in and push the market higher.
Markets need to prune themselves. Markets need to burn off froth. That is what sell-offs do. It may be scary. It may frighten people but it’s healthy. It’s normal and it usually leads to higher returns.
View this and other interviews at http://www.ambest.tv
(By John Weber: john.weber@ambest.com)
