Historically, the Federal Reserve Board has acted as a “punch-bowl killer,” Nixon said. With a new Fed chairman and vice chairman coming in this year, Nixon said it might not even take a policy mistake to upset the markets. New central bankers typically are prone to “miscommunicate,” he said.
The flattening yield curve remains another source of concern, though it can invert and take a long time before a recession follows. Kleintop said the best indicator to watch was to compare three-month Treasury bills with 10-year Treasury notes.
In the year before a yield curve inversion occurs, international stocks outperform, he added. Right now, Kleintop said correlations among the world’s top 20 stock markets are at their lowest levels since the 1990s, so advisors can take advantage of global diversification.
Both he and Nixon also urged advisors not to avoid bonds. Fixed-income securities may be “an expensive insurance policy,” but the policy is less expensive than it was a year ago.