Making Sense: March Market Update

Amy: Hello, everyone, and welcome to the First Citizens Wealth Management Webinar Series, Making Sense, where Chief Investment Officer Brent Ciliano and Manager of Institutional Portfolio Strategy Phillip Neuhart, help you make sense of what's going on in the markets and the economy. I'm Amy Thomas, a Delivery Specialist with First Citizens Bank. While everyone’s logging in, I want to share a couple of housekeeping items with you. First, this webinar is being recorded, and a replay will be sent to you following this conference. Secondly, this webinar is interactive. You'll have the opportunity to ask questions. If you submitted a question during our registration process, thank you. We have your question. Should you have a question during today's conference, please use the Q&A or chat feature to submit your question on the right-hand side of your screen. All questions are confidential and only visible to myself and the panelists. I do want to remind you that we try to keep our discussion broad, so if you have a specific question about your financial plan or we don't get to answer your question during today's webinar, please reach out to your First Citizens partner. As a reminder, the information you're about to hear are the views and opinions of First Citizens Bank and should be considered for educational purposes only. If you have any concerns with this, please reach out to your First Citizens Relationship Manager. Brent, I want to thank you for calling in from home today. I know you're pretty under the weather, so thank you so much for pushing through to be with us today.

Brent: Great, well, thank you so much, Amy, and good afternoon, everyone. I hope all of you are well. It's hard to believe that we are almost through one quarter of 2022 already and what a crazy and volatile start to the year it has been. The S&P 500 has already seen a fall of over 12%, only to recover more than 90% of those losses in just 15 trading sessions. Just incredible. US Treasury bonds are on their way to their worst quarter since Q1 of 1980, falling a whopping 6.4% year to date. Russia has invaded Ukraine, which has brought about a truly, truly tragic humanitarian crisis, in addition to further exacerbating global supply chain issues and inflationary pressures. Additionally, the Federal Reserve kicked off in earnest their plan to begin raising rates this month, reducing their balance sheet assets and thus removing the accommodative policies that have truly buoyed markets in the economy since the pandemic took hold of our country back in 2020. Given all of this, Phil and I certainly have a lot to speak with you about today and specific to this month's call, we're going to give you a high-level update on US economic growth, progress in the labor market, the state of the US consumer and corporate earnings and profitability. Then for our focus topic of the month, we're going to hit Fed policy, interest rates and inflation. Finally, we'll wrap up by giving you our bottom-line views on markets for both this year as well as the rest of this market cycle. So with that, Phil, why don't you start us off?

Phil: Thank you, Brent. Let's jump right into the content. As we highlighted last month, and you can see here, we are entering a new lower growth phase of this economic expansion. We now have a Federal Reserve hiking rates, that's new for this month, continued inflation and supply disruptions. Now on the positive side, the US labor market remains strong, with tight supply demand dynamics, with many nervous about the state of the US economy, the health of the labor market is critical. As we wrote after last month's employment report, the labor market looks surprisingly strong, with low 3.8% unemployment. In the upper left-hand chart here, you can see the improvement since the 2020 recession, when unemployment peaked at 14.7%. For more context of pre-pandemic, we achieved a five-decade low unemployment rate of 3.5% before the pandemic, and now we're almost back to that remarkably low unemployment rate. Labor force participation also improved in last month's release, which we show here in the upper right. We need to see continued improvement participation given the elevated number of job openings we have, which are driving up employer costs. Speaking of which, wage growth remains strong, but moderately declined from recent highs as you can see in the bottom chart here, and a lot of ways, it was the ideal jobs report strong labor market moderating wage inflation and improving participation.

Now, looking ahead to this Friday's March data, the employment report comes out at 8:30 AM this Friday, consensus expects the unemployment rate to improve further, with roughly 490,000 in job gains, a rebound in wage inflation and participation to continue to improve. Even with the good labor market, the consumer is facing a wall of worry, rampant inflation, supply chain bottlenecks, the war in Ukraine and the political environment at home. These factors are hurting consumer sentiment, as you can see on the left-hand chart here. However, as you can see on the right side, the consumer continues to spend, at least for now. Consumers' net worth is at an all-time high and while prices are going up, so are wages. Consumers are walking a tightrope. But as long as the labor market is robust, we think they will push through. Let's now talk corporate earnings. So despite inflation and geopolitical concerns, consensus expects 2022 and 2023 earnings to both grow over 9%. Now, unlike in recent quarters, analysts have revised first quarter earnings down 0.7% but the 10-year average revision is negative 3.4% so this revision is not all that material in a historical context. Estimated profit margins have also remained elevated, as you can see in the chart on the right side. One would think that wage and commodity inflation would eventually pull margins lower, but we are starting at record levels. So if they come lower, that's not necessarily a bad thing. The upcoming first quarter earnings season is critical. We want to see what companies are saying around inflation, supply chains and consumer demand.

Given this info you might be asking, are we going into recession or not? So what do we believe? We believe the US economy is slowing and inflationary pressures remain high, as we have been discussing for months on end. And while the risk of recession has certainly risen, we don't have a recession in our base case for the next 12 months. We do think we are entering a strong mid-cycle slowdown. Now, if we're wrong and the economy slips into a technical recession, the good news is we have a strong labor market, as we discussed, record corporate earnings and both of these factors, along with elevated nominal GDP growth, would provide some cushion.

Let's dig into what's on most investors' minds, the Fed interest rate and inflation. So earlier this month, the Fed hiked the overnight Fed funds rate for the first time since 2018 after holding the rate, as you could see on the left side at the 0 to 0.25% range since March of 2020. They increased the rate by a quarter point to a range of 0.25 to 0.5%. The increase was well telegraphed by FOMC members, but the surprise was in the projections, which are in the table here, particularly the number of hikes the Fed predicted. A median estimate of 1.9% on the Fed funds rate at year end. That's essentially six more hikes this year, with further rate hikes next year. Now, with that in mind, the futures market believes the Fed will need to be even more aggressive than their projections indicate. As we show here, federal funds futures are pricing around 2.5% Fed funds rate by year end, possibly more. Recent comments from Fed Chairman Powell opened the door to a 0.5% hike at future meetings. In fact, the market now assigns a greater possibility of a half point hike in the May meeting than a repeat of the quarter point increase last meeting. Put simply, inflation is forcing the Fed's hand. Now, the sudden increase in the path of the federal funds rate caught the fixed income markets off guard this year. As you can see in the upper left, treasury yields have increased rapidly in both short term rates, like the 2-year Treasury and longer rates like the 10-year Treasury. But short-term rates have risen faster than long rates, making the spread between the 2-year and the 10-year contract rapidly. We're showing this in the upper right. This is also known as yield curve flattening and as you've probably seen in the financial press, the curve briefly inverted yesterday. That's a situation in which short term rates are above long-term rates. Thanks to some great questions ahead of today's call, we're going to dig into this topic further in the Q&A, so I won't get into a lot of details here, but an inverted yield curve can predict an economic contraction. So one might ask, why do higher yields matter for me? Well, as you could see in this bomb chart, consumer interest rates are highly correlated to Treasury yields. Here we are showing the huge upward move in mortgage rates. This, of course, will eventually have an impact on the housing market, so there are real world implications for higher yields.

So you've mentioned inflation, where do we stand now? Since our last webinar, the Russian invasion of Ukraine has exacerbated consumer inflation. As you can see here, the price of crude oil skyrocketed after the invasion and thereby retail gasoline prices rose, which were shown on the right side here. Other commodities rose post-invasion as well. Everything from the price of aluminum to wheat as traders dealt with more supply chain disruptions. Investors will have to contend with really high March inflation data, which is released in mid-April. Given the rise in gasoline prices following the invasion, inflation expectations showing the left here have rebounded after coming down in recent months. We can take some solace in that longer term expectations are well below near term expected inflation, we're showing one versus three-year inflation expectations here, but both levels, as you can see, are elevated. As the right chart shows, the pace of inflation will likely moderate in coming quarters, but the absolute level will remain above the Fed's preferred 2% target. As we point out, previously, the pace of inflation declining does not mean prices all out fall. Consumers, businesses and the Fed will be struggling with higher prices for many quarters to come. So what's the bottom line? The Fed has acknowledged that is going to materially hike rates. It took them a while, but we are there, so we now have markets in a Federal Reserve that are more in line. Bond yields have come to terms with future Fed hikes, and inflation is sky high, and the Russian invasion is exacerbating the issue. So what do we believe? We believe the Fed will hike numerous times this year but will not reach the higher end of the market expectations we showed previously. Inflation will moderate later this year, but will remain elevated, so moderation doesn't necessarily feel good. It's just a moderation from an already elevated level. Bond yields have adjusted significantly in advance of Fed action, so it's not a slam dunk that Treasury yields will continue to move up in a straight line. Brent with that, I'll pass it to you to discuss where markets go from here.

Brent: Great, well, thank you, Phil. There's an awful lot going on in both equity and fixed income markets, so let's dive right in. But before we jump into where markets may go from here, let's take a moment and pause and talk about where we are today. As I mentioned in my opening comments, fear surrounding multi-decade high inflation, combined with an economic slowdown and change in Fed policy, sent the S&P 500 down about 12.3% year to date through March 8. But from March 8, we have since rallied over 11% through yesterday, the 29, leaving the S&P 500 down only 2.5% year to date, so talk about equity market volatility. When you look at the chart on the left-hand side of this screen, year to date, value is still outperforming core and growth and large cap stocks are outperforming mid and small cap stocks. But what I want to highlight is that something very interesting started on March 8 and from March 8 of this year through yesterday. Growth stocks, as represented by, let's say, the Russell 3000 growth, which is that entire growth vertical there, are up 14.6% versus value stocks, up only 7.8%. So as Phil covered in the economic section, you know, a US and global growth deceleration might be starting, we believe, and we might also be seeing the beginning of a change back to growth names over value names. Still quite early, but we're seeing signs of that begin.

Lastly, on the right-hand side, you can see that despite the market's price and PE multiples declining, corporate earnings, as Phil just mentioned, continues to be a positive driver of market returns. Just like we saw in 2021, it's continuing this year and corporate earnings are already up a plus 4% year to date. So given the current and ongoing conflict between Russia and Ukraine, we've received lots and lots of questions from you surrounding the impact of geopolitical events and the effect on markets. And what we're looking at here is 29 of the last major global conflicts and events post 1939. And what you can see on this chart is that the S&P 500 has been positive on average 1-, 3-, 6- and 12- months post any of these events. Both the average and median S&P 500 return 12 months post was a double digit return of plus 13% and plus 14%, respectively. Additionally, when you exclude the four shaded events that you can see on this chart that occurred while the US economy was already in recession, the S&P 500 was higher almost 100% of observations. And when you just take a moment and look at some of those things there, think about the third one down when you're looking at, you know, Pearl Harbor, right? Imagine 12 months later seeing the stock market positive. So I want to give you a couple of other interesting observations that you wouldn't expect to see, given the current conflict in direction of Fed policy, as Phil just mentioned. Year to date through last night, stocks are now outperforming bonds. The S&P 500 is off 2.5%. The US aggregate bond index is down 6.3% and municipal bonds are off 5.5%. From the day Russia invaded Ukraine, which was on February 24, through last night, the S&P 500 is positive 8.1% and US bonds are negative 2.3%. So talk about an interesting confluence of events that certainly what you would not expect to see with geopolitical events and an invasion, you would think you would see a flight to quality and risk aversion, and you're seeing exactly the opposite. And lastly, from the Fed's first-rate hike back on March 16 through last night, the S&P 500 is positive 6.3% so this change in Fed policy and the hiking of first rates has not yet impacted the S&P 500 or risk assets. So speaking of geopolitical risk and uncertainty, there's a misconception amongst investors that high levels of uncertainty spell trouble for markets and in the top left chart here, we're highlighting the US economic and policy uncertainty index. In simple terms, this index measures the broad level of uncertainty in the US across multiple components, including policy changes and estimates, Wall Street forecasts on markets and the economy, as well as media references to uncertainty and volatility. And you can see across that chart all the individual events that have occurred over the last number of years. As of March 27, this uncertainty index was sitting above the 99th percentile at a level of 412, which marks one of the highest readings in more than 20 years. As a forward indicator, folks, higher levels of uncertainty have yielded higher forward market returns, not lower. And trust me, we understand how counterintuitive that sounds but extremely elevated levels of policy uncertainty are more often found near market lows than peaks and in the bottom right chart here S&P 500 returns following elevated policy uncertainty readings have historically seen significantly higher returns 1-, 3-, 6- and 12- months post and more specifically to what I just told you, index levels north of 200 and again, we're sitting at 412 today, has historically seen forward S&P 500 returns, more than double those readings below 100. So again, uncertainty tends to portend higher future returns, not lower.

As Phil and I highlighted on last month's call, this is certainly a midterm election year and midterm election years have seen heightened volatility over and above what we've historically seen in non-midterm election years. And from a timing standpoint when you look at that chart on the left, the volatility year to date and the subsequent rebound is following the historical pattern we've seen during these periods quite closely. And that's that red circle, followed by that upward movement that you see over that March time frame. But what Phil and I believe is most important to focus on is that green line up and the chart to the right is that 12 months following midterm elections, the US stock market has been positive 100% of occurrences since 1950, with an average return of plus 15.1% so think November of 2022 through November of 2023. And following what Phil just covered related to the bond market’s reaction to both rampant inflation as well as expected Fed policy actions, bonds across the entire spectrum have been challenged year to date. In fact, US treasuries are on course to post their worst quarter of performance since Q1 of 1980, and you can see that in the top left-hand call-out box. But it's beyond just government bonds, look at the sector and spread related products have felt similar pain as well year to date. And folks, if there's a silver lining to this bond market volatility, it's really two things.

First, we believe much of the pain has already been inflicted. And while Phil and I are not necessarily calling the bottom to this bond market sell off yet, we do believe that relative to other similar historical bond market events, the markets have reflected a good deal of this information already into current prices. Second, look at some of the yields now in the second columns of these charts. Look at the one on the right. Investment Grade Corporate bonds are at an almost 4% yield today, which certainly bodes well for forward returns for the asset class, especially after what Phil and I covered back in December of last year's 2022 outlook, when consensus 10-year forward stock market returns for the S&P 500 were expected to be about 5.87%. So again, while there's a lot of pain in fixed income markets, that certainly makes the asset class much more attractive and bodes well for forward returns in fixed income markets. We covered this slide on the last two Making Sense calls, and I want to hit it one more time. I promise you; you won't see it again. I just wanted to make sure it gets burned into your collective minds permanently. Looking back over the last 40 plus years of data, market drawdowns are not only common, they've occurred every year for the last 42 years and to drive home this point even more, the average intra year drawdown is an uncomfortable negative 14% per year. But despite this large annual event, markets have finished higher and finished positive 32 out of the last 42 years, or 76% of the time, folks. So please, please, please understand that as uncomfortable as it is to see markets fall like we saw earlier this year and even this month, these types of moves are very much a normal aspect of yearly market movements. And I showed you a chart last time where we talked about 10% to 15% drawdowns, recovering on average over the last 100 years and about nine months. Folks, we've recovered almost all of that in 15 trading sessions, so the vol of all is moving much quicker than historically observed observations. So let's bring this home and let's give you our bottom-line views on markets this year and for the full cycle.

First, let's address where Wall Street consensus is at. Consensus has 12-month forward price target for the S&P 500 as of last Friday, March 25 of 5,278 which is about 17% return from last Thursday's close of about 4,520. And Phil and I have covered this consensus view on each and every monthly webinar since we started doing this. And you might be asking yourself, well, guys, how accurate has consensus been historically? Well over the past 15 years, industry analysts have overestimated the price of this index by about 7.7% on average. So if I apply that forecast error to that 5,278 that I'm showing you here, the revised down number is more like a 9% gain from here or an index value of about 4,931, which then takes us to our views in that second bullet. Our 2022-year end S&P 500 price target is 4,900, and back on December 15 of last year, when we put this out there, we saw an 8% to 10% EPS growth and a 5% to 7% multiple contraction gets you to about 3% growth over 2021's year-end index level, which was 4,766 taking us up to 4,900. We still believe that 4,900 is our base case for this year. And last bullet, while it might be hard to contemplate now, given the volatility today, we still believe the S&P 500 can potentially achieve 5,500 or greater by year end 2023, maybe first half of 2024. But the market's easy gains are likely behind us, and Phil and I are more focused on the level, not the when. And while markets and global events today are certainly noisy between now and the next 6 to 12 to 18 months, will some of these things bothering markets be better or worse? We believe the following will be better. COVID, inflation, global supply chain issues and geopolitical tensions, both at home and abroad and even if earnings don't reach analysts 2024 target of $271 per share or the market's multiple isn't 20.5 times and you apply significant discounts to both forward earnings and PE multiples, we still get the S&P 500 north of 5,000. What I want to be incredibly clear on is that we are not calling the end of this cycle on December 31 of 2023 and all right, folks, party's over. It's the level, not time. Also, historically, history has shown us that markets can run well beyond fundamentals. So again, the markets can go well beyond where earnings and multiples take us. So Amy, I can see questions are piling up in the queue so with that, why don't we open it up and let's get started on the Q&A?

Amy: Yeah, for sure, Brent. Thank you so much. That's some pretty astounding information you just shared. We'll give you a second to catch your breath there. Phil, we talked a little bit in the beginning of today's call about the yield curve and as you mentioned, we have a number of questions around it, specifically around the 10-year versus the 2-year and how that may be a precursor to a recession. What are your thoughts there? What should we be looking out for as we move forward?

Phil: Sure, sure, absolutely. So I did mention the yield curve inversion and promised to discuss it more in Q&A. So as a reminder, yield curve inversion is when short term rates exceed long term rates, right? You should, longer term rates should be higher in the short-term rates. That's what makes sense in our minds. But so an inversion is something you don't expect. It's uncommon and portends potential issues. So often, investors use the 2-year Treasury and the 10-year Treasury as a proxy. Even that is argued about. A lot of economists push for the 10-year Treasury versus things like the three-month T-bill. So let's talk about 2-year and 10-year for now. So if short term rates exceed long term rates, the market is telling us that rates, inflation, growth are lower in the long term than the short term, i.e. a recession is coming. So what are the facts? So since the late 1970s? The yield curve inverted on average, 12 months before a recession, but there are some interesting details. First, the curve inverted in 1998 and did not predict an imminent recession. It did not come. Second, that 12-month average is deceptive. The range of months is six months before recession, all the way out to 22 months before recession. And I'd ask is nearly two years ahead of a recession really a prediction? So in fact, often the stock market does well following inversion because there is no certainty when a recession might occur. And for what reason? Case in point, the curve inverted briefly yesterday or inverted briefly yesterday, as I mentioned yet the S&P 500 rallied 1.2%, so curve inverted, you'd think the stock market would sell off; it actually rallied after the inversion. And then you have the question of correlation versus causation. So, for example, the curve inverted in August of 2019, well before fixed income investors had any indication that a pandemic would hit the global economy in 2020. It was really telling us in 2019, was that we were very late in the economic cycle. It wasn't predicting that, hey, we were going to have a recession in spring of 2020. In the end, the yield curve inverting is usually indicative of the Fed hiking rates and a slowing economy, which is where we are today. Whether it's a predictor of the recession is immediately around the corner is open to debate and it's being debated pretty hotly right now. Our base case, as I mentioned, is we don't see a recession in the next 12 months. As you move beyond 12 months, the fundamentals are going to dictate that. But we don't see it immediately around the corner. If we are wrong and we do, the good news, as I outlined, is we have a strong labor market, so strong consumer balance sheet. We have strong corporate earnings, so we have some cushion if there were to be, what would essentially be a double dip recession if we had a recession imminently.

Amy: Thanks, Phil. That's good news. Brent let's jump off of that and talk about the potential recessionary activity looming and what our investment options are around that. If we were to go into a recession, what our strategy would be.

Brent: Sure, sure. So again, as Phil mentioned, you know, we believe even if we were to technically go into recession, we believe that consumers and corporations are in the best shape that they've been in 50 plus years. And we believe if in fact, that were to happen, number one, the time in which we would be in recession would be much shorter than normal. And again, usually people get fearful that when a recession comes, you know, risk assets sell off, et cetera, et cetera. Right? What we've seen in the past is that in, as we enter that cycle, from growth to mid-cycle expansion to that slowdown then ultimately recession, usually asset classes that have done well historically are down in cap. Think mid-cap, small cap. I also think, you know, core and growth, right? It sounds counterintuitive, but when you think about value stocks, what do value stocks need? They need burgeoning economic growth. They need low interest rates, right? So usually they tend not to do well when growth is scarce. So again, we see the cycle changing. We see down in cap, we see more growth, which is certainly a counter consensus viewpoint. But from a historical perspective, when you go back and you look at these various cycles, that's certainly what's worked. Again, we tend to use our forward-looking capital market assumptions that drive our portfolio positioning over the next three years. So we're not so concerned what's going to work today, tomorrow or next week. We're more concerned about what confluence of exposures are going to best work together over the next three years, and we believe that's down in cap and growth.

Amy: Thank you, Brent. Phil, we talked a little bit about the Fed raising rates and how we think that's going to continue over the next year or two. Can we talk a little bit about, in layman's terms, with the Fed raising rates, how that impacts inflation and what their goal is and how that might impact an industry like the housing market and things like that?

Phil: Sure, sure. Absolutely. So the end goal when the Fed hikes rates simply is to cool the economy, right, and thereby alleviate inflation pressure. If you cool the economy, it should theoretically be less demand. Less demand puts downward pressure on inflation. You mentioned the housing market in this question. That is a good example. So let's use that as an example to sort of think through what the Fed is trying to do. So in an ideal world, a theoretical world, the Fed tightens policy through increasing overnight rates, which finds its way into higher mortgage rates, which thereby makes buying a home more expensive and thus reduces the demand for homes. So higher mortgage rates, the affordability goes down, demand for homes goes down. There's less demand for homes, price appreciation should slow and also build or demand for all the commodities that go into a new home also slows, which should also reduce commodity inflation. So far this year, mortgage rates have risen as markets have priced future Fed hikes. So the first step, at least, is working theoretically, specific to this housing market, we've extremely tight supply demand dynamics still so there's still some time to come. But rates have gone up. That is really what the Fed can control. Now, that's the ideal world. Now, in the real world, there are many other variables. For example, the Fed controls the overnight rate. Mortgage rates are tied to longer term Treasury yields. They're more correlated with the long-term Treasury yields.

And unlike this year, when mortgage rates have risen, long term rates don't always rise just because the Fed is hiking. Also, the Fed is usually trying to slow things, but not slow them too much. If mortgage rates are moving higher, we'd expect the housing market to eventually slow. But to what degree is an orderly slowdown. Maybe, maybe not. Put simply, the Fed has a very difficult job and only controls a few variables among the thousands of variables that drive a global economy. So it is not a straight line. There is no knob that the Fed turns. They are simply, through their policy tools, trying to cool the economy. That is not an easy task at all.

Amy: So, Phil, what I'm hearing you say is that when the Fed raises rates, that's not necessarily a silver bullet across the board and inflation is going to automatically go down. Can you talk a little bit about, assuming that's correct, talk a little bit about how long it may take for people who are going to the gas pump or to the grocery store to start seeing some of the relief that the Fed is trying to achieve?

Phil: Right? Yeah. So we showed on slide 14 actually, sort of the path of inflation falling later this year and into next year. It's still elevated, though, and when we say the pace of inflation slows, one, that does not mean prices fall. It means the pace of year-on-year gains in prices starts to slow. Right? So if in fourth quarter we're still north of 4%, that still hurts. It's just not the extreme we're seeing right now. Now, this is overall prices. By asset class or by consumer good, it's going to vary a lot and there are things there just outside the Fed's control. So what's happened since our last webinar? Russia invades Ukraine. What does that mean? Crude oil prices skyrocket. Things like wheat prices skyrocket have nothing to do with central bank policy. It has to do with the supply disruption and people not being sure there's going to be enough wheat in the system to feed people, right? Crude oil, what happens with pipelines? So the truth is, it takes time. It is going to vary by asset class and it's really going to vary by, it's going to depend on factors that are outside the Fed's control as well. Semiconductor shortages. The Fed does not necessarily control commodities that need to go into semiconductors for those to be made. Right? So we think it's going to go down on trend, but it's not going to be orderly and it's not going to be a straight line down and it really is going to depend by asset class.

Amy: Thanks, Phil. Brent, on the subject of geopolitical risk, I've got a couple of questions around European equities regarding the recession risk around them and how things are going given the Ukraine situation. Can you speak to that a little bit?

Brent: Yeah, absolutely. As Phil just highlighted, right? You know, the Eurozone is one of the main recipients of taking these supply chain hits on the chin and specifically on the, you know, in the energy vertical. When I think about liquid natural gas, you know, oil, broad agricultural base ferrous metals, all those commodities, they're getting hit probably the most. So when we think about that, we believe that the Eurozone is likely to head into recession and headed into recession quite quickly. Coming into this event, pre-invasion. Right? Intrinsic valuation for European equities was about average, right? Ever so slightly more expensive than its long-term history, definitely cheaper than US stocks. Right now, they are still ever so slightly cheaper than their historical average as they've sold off. Broadly, we still believe that shorter term the Eurozone and more specifically developed stocks in general and more specifically, European equities, we'll see price pressures and we'll see, you know, continued sell off over the next 6 to 12 months or so. But ultimately, if we continue to see pain, there will be an inflection point where they will be trading almost two standard deviations cheap relative to their long-term average, right? We hit that probably about almost 10 months ago, and we could see that happening in relatively short order. That then certainly makes developed international equities more attractive. I certainly think if I were to extrapolate broadly into international equities more broadly and include emerging markets, certainly there was pain in the emerging market equity complex, certainly with Russian stocks. And if I think about the disaggregation of emerging market equities, you know, China and Taiwan make up, you know, a top third and 16% of the index, almost 50% of that index are those two countries. So again, a little bit more pressure there. We've been underweight, max underweight international stocks relative to US stocks, and we're in the process of re-optimizing portfolios now and trading portfolios in the next week or so, and we will be maintaining that max underweight to both developed and developing stocks. But we think over the next three to five years, the next 12 to 18 months could prove to be a nice entry point.

Amy: Thank you, Brent. Phil, thank you so much for your thoughts today. We're getting pretty close to time, so we'll go ahead and wrap up. Brent, a special thank you to you. I know you're under the weather and thank you so much for pressing through and calling in today. We hope you feel better and have a speedy recovery so we can see you soon. I want to thank everyone for being with us today on the webinar. If your question wasn't answered, please reach out to your First Citizens partner. As a reminder, this webinar was recorded, and we'll send it out to everyone who was on the call or registered. We'll send that out to you automatically. Our next Making Sense market update webinar is on April 27 at noon eastern, and we'll be sharing details with you in the coming weeks for that. You can find all of our webinars and a lot of other information available to you at firstcitizens.com/wealth and on behalf of all of us on here at First Citizens, I want to thank you for trusting us to bring you information to help you with your financial decisions. That trust is not something that we ever take for granted and just want to thank you again for being with us. We hope to see, hope you have a great rest of the week, and we look forward to seeing you on our next webinar. Thanks, everyone.

Brent: Thank you, everyone. Take care.

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