Retail traders risk ‘overreacting’ amid tough market, Merrill Wealth Management president says

Merrill Wealth Management President Andy Sieg joins Yahoo Finance Live to discuss the market sell-off, consumer spending, and portfolio strategies to weather the choppy market.

Video Transcript

BRAD SMITH: Welcome back, everyone. Markets this morning remain under pressure after yesterday's sharp sell-off driven by disappointing retail earnings. And joining us now to talk about how the consumer is faring is Andy Sieg, who is the Merrill Wealth Management president joining us this morning. Andy, great to have you here. First and foremost, just give us your perspective around some of the broad-based sell-off that we've seen, especially as it's continued to be not just driven by retail, but certainly exacerbated by some of the earnings that we've seen come through.

ANDY SIEG: Well, Brad, good morning. I think if you take a step back here, we're in a period of substantial transition to a new macro environment, of course. We can't underestimate or forget just what a enormous not just health crisis, but disruption to the global economy that we've been through. Of course, policymakers threw everything at that, fiscal stimulus, monetary stimulus as well.

We're now hopefully coming to the other side, but we're experiencing some of the aftereffects of that stimulus and that new macro environment-- much higher inflation, higher rates. Markets are adjusting to that. So as a retail investor, one of the things we need to be very aware of, this is a time when emotions are high. We've got to maintain some calm and balance, and keep our eyes focused on medium and long-term goals.

BRIAN SOZZI: Andy, how do you stay calm when you open your portfolio and you're down 50%, 60% on a Netflix or other tech stocks?

ANDY SIEG: Well, that's-- hey, that is precisely the challenge, which everybody, when they open their statement, has that feeling. And so, number one, we got to know what we own. And do we like what we own in our portfolios? Do we feel good that our long-term asset allocation is consistent with the time horizon and the kind of risk we want to take? To the extent that the answer to that question is yes, in some cases, what you should do right now is make relatively modest portfolio adjustments.

You know, interestingly, one of the things right now you can do, to the extent you like your exposures, you like your asset allocation, you should be thinking about some tax loss selling and taking advantage of that right now. We got a lot of questions from clients about, is this the right time to get into the markets? That's where coming into the market step by step, dollar cost averaging is very important. So there's a lot to think about right now.

But unfortunately, many times, our instincts go to, hey, let's just leave equities altogether. Let's liquidate portfolios. When you look back over time, it pays to be exposed to the equity market over time. Over the last 80 plus years, if you were just out of the equity market the 10 best days of any decade, your return over the last 80 years would be something like a cumulative 50%. If you were in the market the entire period, exposed to equities all along the way, your cumulative return would be 21,000%. So, you know, that's the risk that individual investors have overreacting to this environment.

JULIE HYMAN: And of course, your calculus is very different if you're retiring in 2023 than if you're retiring in 2050. So people have to figure that out as well. Andy, being, as you are, under the Bank of America umbrella, you guys have access to an enormous amount of consumer data. And we've been talking a lot this morning about the retailers and what they've been telling us. What are you thinking, as you're looking at those numbers, and you're looking at your data, and as you assess consumer spending and how that's informing your strategy?

ANDY SIEG: Well, candidly, I think some of the read on the retailer data is more pessimistic about the state of the consumer than what our own data shows. And we've talked about this through the Bank of America Institute and in our first quarter results about a month ago. When we look at checking and savings accounts across Bank of America, we see our client base, which is 67 million households across the US, in strong position.

Balances in checking accounts are more than double what they were pre-pandemic. And so this is, again, the aftermath of the stimulus, the reduced spending through the course of the pandemic. So we're more optimistic than many today that the consumer has substantially built their savings and has an ability to weather some of the inflation and other waves that are buffeting them right now.