'Do Not Panic’: An Investment Strategist on Managing Money In This Volatile Market

If you’ve been in the investing game for a while, you know market swings are inevitable. But right now, things feel…extra wonky. And all the uncertainty can be v stressful. So we tapped Gargi Pal Chaudhuri — who just happens to be the Head of iShares® Investment Strategy, Americas at Blackrock, and has over two decades of experience in the financial services industry. And she gave us the inside scoop.

PS: This interview has been edited for length and clarity. And co-writers Jasmine Fan and Faye Witherall helped get these answers juuust right.  

First things first: What should investors keep in mind right now? 

“We’ve entered a new market regime marked by high volatility, inflation, and uncertainty, spurred by higher interest rates, pandemic scars on the job market and economy, and geopolitical conflict. But investors do not need to panic. In fact, history shows it may be best to stay invested.

Over the last 20 years, 24 of the 25 best days in the market occurred within one month of one of the 25 worst days.* Staying invested during rough patches can help investors stay on track for pursuing their long-term goals.  

Personally, the biggest financial mistake I’ve ever made was cashing out at the bottom of the financial crisis of 2008. I felt panicked by the uncertainty, and thought it was the safest option. But then I missed out on the significant market bounce-back that came next. Market volatility isn’t unique, and we cannot control it — but we can control our reaction to it. 

Remember: No one has a crystal ball that can help them time the bottom. I favor a defensive stance moving forward. I especially like shorter dated, inflation-protected bonds and high dividend-paying assets. It’s also important to keep your portfolio diversified during periods of uncertainty like this. Varied exposures can help mitigate losses and offer potential protection.” 

Can you Skimm a few conditions and events that are moving the markets?

“The word of the moment is inflation. The August Consumer Price Index report stunned markets on Tuesday September 16, showing a still-rapid pace of inflation increase. Every single subcategory within core goods ticked higher. Even as we see the recent ease in energy prices, inflation may stick around because of other economic factors like a resilient labor market and hot housing market. 

To help fight inflation, the Federal Reserve has committed to raising interest rates. In fact, they’ve already delivered five consecutive rate hikes this year, including three ‘jumbo’ hikes of 0.75% in June, July, and September. And markets continue to brace for higher interest rates. But while more aggressive monetary policy could lower inflation on one hand, it could further stall US economic growth on the other. Meaning, it’s possible that the Fed’s moves could engineer a recession. 

I get asked all the time how likely we are to experience a recession. Honestly, no one knows just yet, but economic indicators like the strength of the job market, the strength of the consumer (hint: you), and the condition of the manufacturing sector can clue us in. We are not in a recession yet, but we at BlackRock believe that if the Fed keeps moving interest rates higher, we could go into one next year. That could be one reason things remain volatile. 

The Inflation Reduction Act, which President Biden signed into law in August, could also shake things up. It focuses on additional clean energy and infrastructure investment. And while this is not going to help bring inflation down in the near term, it could help speed up a transition to more sustainable energy sources.”

Does the passing of the Inflation Reduction Act position any particular industries or sectors for success? Should investors adjust their portfolios accordingly?   

“The Inflation Reduction Act delivers over $370 billion of funding to areas such as clean energy and sustainable infrastructure. The efficient energy, agriculture, and infrastructure sectors are all poised to benefit from this sweeping legislation. We may also see electric vehicle growth following tax cuts and direct investments within the package.

Investors looking to capitalize on the Inflation Reduction Act can consider pure-play exchange-traded funds (aka ETFs) that provide exposure to the clean energy and electric vehicle value chains. We at iShares® like investments that offer exposure to a full breadth of potentially benefitted sectors. I see room for opportunity along the entire supply chain, including manufacturers, battery producers, and suppliers. The Inflation Reduction Act could also benefit dividend-paying stocks, as it incentivizes companies to return profit to shareholders via dividends rather than buybacks. 

Since the legislation could be a catalyst for sector-wide shifts and spur innovation with long-term impacts, holistic exposure across entire sectors may allow investors to fully maximize on its impacts in both the near and long term.”

Is there anything else investors can do while inflation keeps inflation-ing? 

“It’s important to remember that eras of high inflation are usually marked by a worse-performing stock market. And while the Fed raises interest rates to try to tame inflation, bond prices usually fall. It can feel like there’s no good place to keep your money. Investors may want to consider taking this opportunity to build for the long term, taking advantage of low prices.

If you prefer lower-risk yields, front-end fixed-income investments like government and corporate bonds, CDs and money market funds might be calling your name. Investors with a higher risk tolerance, on the other hand, may want to opt for broad-based ETFs that seek to track the whole market or specifically defensive sectors like energy, utilities, or consumer staples.”  

Last but not least: Are there any trends your team is keeping an eye on that consumers and investors should too? 

“In addition to supply chain impacts resulting from geopolitical situations like the Russia-Ukraine War and continued Covid-19 lockdowns in China, elections in Italy, the US, and Brazil could influence markets. 

Narrowing in on the US, the amount of debt Americans carry on credit cards and as student loans and mortgage balances has grown significantly in recent years. My team and I will keep an eye on debt levels, especially in relation to average household wages. We’re also looking at unemployment rates, which have remained at historic lows despite all the turmoil we’ve discussed. If unemployment rates rise, that could drive wages down. 

More generally, I’m energized by the idea that we can all invest in powerful, transformational macroeconomic trends that impact our daily lives. Industries like robotics, infrastructure in emerging market countries, and the future of food all excite me and bring optimism to my investing horizon.”

Psst…head here to learn more about Gargi, her team, and the investment insights they offer.

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