With the market sinking and some global economies teetering on the brink of recessions, a panel of investment strategists speaking at the Investment Management Consultants Association’s Advanced Wealth Management Conference on Tuesday were surprisingly sanguine.

Forget more “taper tantrums” as the Federal Reserve ends its bond-buying program. Both stock and bond markets should take the development in stride, attendees at the San Diego-based event were told.

“If you look at … the last two rate-hike cycles, stocks continued to rally for an average of one to two years,” said Jonathan Golub, chief U.S. market strategist at RBC Capital Markets LLC. “I don’t see any reason why that’s won’t happen now.”

And this time around, the Fed isn’t under any pressure to cool an overheated economy with aggressive rate increases, he said.
“There is no urgency” to raise rates, agreed Rex Macey, chief allocation officer at Wilmington Trust Investment Advisors. “The big fear the Fed has will be choking off a recovery. And because of that fear, they’d rather be easy for longer. So I think you will see a very gradual change.”

A Fed funds rate, maintained in the 2 percent range, should keep asset values relatively high, said Tony Crescenzi, executive vice president, market strategist and portfolio manager at Pimco. “This should keep equities and [fixed income] credits more fully valued than you think,” he said.

But beware unhedged foreign holdings.

Weakness in Europe and Japan will force their central banks to maintain loose-money policies while the Fed is able bump up rates. The result will be a stronger dollar. “The tightening has already begun and you’ve seen it in the dollar,” Crescenzi said.

Golub thinks U.S. equities could gain 12 percent to 15 percent per year over the next two to three years, thanks to prolonged Fed pump priming together with and some multiple expansion for stocks.

“The only thing that stops bull markets are recessions, and we’re not close to one,” he said.

Over the next few years, “I think stocks kill bonds, but I think bonds don’t kill investors,” Golub added.

Longer-term valuation measures don’t support double-digit returns from stocks in the near future, Macey countered, but “we don’t worry about the negative returns to bonds.”

Contingent convertible bank debt in Europe looks attractive now, Crescenzi said, as do Spanish and Italian bonds of up to 10 years -debt that is now rated triple-B but should converge to the lower yields on German Bunds. Pimco also likes short-dated high-yield paper that should mature before the next recession, and complex mortgage bonds where investors can benefit from a buyer’s market.

“The world wants to get rid of non-agency securities and other complex credits because regulators want” banks with cleaner balance sheets, Crescenzi said.