PNC Financial’s Jeffrey Mills has a message for investors: Resist the urge to play it safe.
The firm’s top investment strategist is concerned jitters are driving investors into less profitable or worse — losing — areas of the market.
“Folks may have an inclination to do drastic things in portfolios to insulate themselves from higher volatility when in fact we think the backdrop would actually portend the exact opposite,” Mills told CNBC’s “Futures Now” in a recent interview.
“It’s key to understand that the call for higher volatility doesn’t have to be a call for poor market performance,” Mills added.
His hunch appeared to be timely. According to the Investment Company Institute, investors yanked the most money out of U.S. stocks in February since the 2008 financial crisis. The data suggest market participants are getting increasingly nervous amid whipsaw action in stocks.
“Investors, and really humans in general, have this inclination to try to make themselves feel safer,” Mills said. “I think about folks who are afraid to fly. They actually choose to drive even though driving is exponentially more dangerous.”
The Dow Jones Industrial Average and S&P 500 Index are now are essentially flat for the year. Meanwhile, the Nasdaq is up 3 percent year-to-date.
Mills contends economic fundamentals and solid earnings will push stocks higher this year even though valuations remain elevated — adding it’s the wrong time to get majorly defensive. The Dow may not soar 25 percent like in 2017, but he predicts the S&P 500 will likely grow between 4 and 6 percent over the next 12 months.
Right now, Mills favors financials, energy and technology stocks.
“We do like tech. We don’t think valuations are as extended as maybe some people would think given the run,” he said. “If you look at the percentage of companies in the tech sector above their 200-day moving average, it’s actually some of the best breadth we see across sectors.”
He cited areas, such fixed income and cash, as sectors that could burn investors with poor returns in the coming months, when compared to stocks.
