Expect more volatility in flamboyant banks and market this year, says CIO

Taylor warned the advisors not to become complacent.

“I think a lot of people are satisfied with the thought that you can just buy dips and there is always going to be a return, so don’t worry about the risk,” he said. “It could be an environment that we’re entering that can be very difficult for us. It’s something that people need to be aware of.”

Taylor also cautioned that there is still a lot of risk. While people are buying passive index funds, many of which are market cap weighted, nearly all of them are overweight and a lot of stocks — such as Apple, Microsoft, Amazon and Google — are getting riskier and more expensive. As more money comes into the market, it begins to increase the valuation of these stocks, which increases the risk.

“I think investors should be aware of this and make sure they are checking their portfolios,” he said, adding that companies like Apple now have over $3 trillion in market cap and a risk appetite. That growth may slow down and people who do a lot of it may start to switch from technology to other areas. “This could be something that could creep in and cause more pain for investors. So, take the time to look at those dormant holdings and make sure there is not too much overexposure in one area.”

Meanwhile, Taylor is hoping a cyclical correction will begin and take the lead, while tech stocks could face volatility and interest rate hikes. Energy stocks may continue their gains this year, and banks and materials may also begin to improve with global growth. If so, he said, “this could be a situation where we will see the TSX outperforming the S&P 500,” which hasn’t happened since 2016.