Investors brace for volatility as hot CPI fuels sell-off

The hotter-than-expected March Consumer Price Index (CPI) report has triggered a broad market sell-off, with stock futures feeling the most pressure. Edward Jones CEO Penny Pennington joins Yahoo Finance Live to discuss market outlooks and investment strategies.

Pennington explains that the CPI inflation print has raised investor concerns about the prospect of "higher interest rates for a little bit longer." She notes that the overall persistent inflation has significantly impacted how individuals are "spending and investing."

According to Pennington, the current market conditions have been "quite frothy," and she expects continued volatility ahead. The sources of this volatility range from the inflation data to the "election environment for the rest of the year." However, Pennington believes there is still room for market returns, as the "goodness in the stock market" is starting to broaden out.

To help investors navigate these turbulent times, Pennington suggests seeking the guidance of a financial advisor. This, she says, can help curb the impulse to make decisions driven by "FOMO or YOLO." Importantly, Pennington emphasizes that investors should focus on their "own benchmarks as it relates to [their] goals," rather than solely relying on market indexes.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

Editor's note: This article was written by Angel Smith

Video transcript

SEANA SMITH: Markets are selling off this morning. All major averages are lower off more than 1%. You can see the Dow now off nearly 500 points. This comes after consumer prices topped forecasts for the third month in a row.

And now, investors, they're worried about the path forward for interest rate cuts. Many traders pushing off that first rate cut here from the Fed. We want to bring in Penny Pennington, Edward Jones CEO, to discuss more.

Penny, it's great to have you at the desk today. Let's talk about that CPI print. The third month in a row, like I just said, of a print that shows that consumer prices remaining elevated here, much stickier than what the Street had been forecasting.

What does that then tell us about the pressure that we could see on equities in the short term?

PENNY PENNINGTON: Well, let me zoom out for just a moment and say that our financial advisors are meeting with our clients right now, eight million clients who we serve. They meet with 500,000 clients each week.

So you're right to ask what investors and what our clients are thinking about. What they're asking about right now is, what does this do to my medium and long-term plan? How do I think about the goals that we put together, my financial advisor, and me, and my family? How do we think about that in light of what is likely to happen? Which is what the Fed has been conveying, higher interest rates for a little bit longer. CPI, inflation is pretty sticky right now.

We saw some good moderation. We saw some prices come down. We've seen other prices go up, especially, the things that our clients are spending money on, larger ticket items. They're spending money on experiences. One of your previous guests talked about how this summer is going to be a busy travel summer.

So those kinds of sticky prices in the service sectors are affecting the way clients are spending their money right now.

BRAD SMITH: Does it affect the way that they're saving as well or how much of their savings they're tapping into?

PENNY PENNINGTON: Sure. It does. One of the things that we're seeing that's very interesting is that retired investors, the investors who are watching your show, they're spending on bigger ticket items. They're taking their families and three generations of their families to Italy or on that dream vacation.

BRAD SMITH: Do they need a friend? They can take me.

[LAUGHING]

Just saying.

PENNY PENNINGTON: The way that they're spending and investing is affected. One of the things that they're asking is, should I be getting the kinds of returns that we've seen in the S&P 500 since last October? Should I be seeing 25% returns in my portfolio? Well, only if that's the risk appetite that you have. Only if your goals are longer term in nature.

But we're talking to our clients about shorter term goals, balancing those with longer term goals. And so what this means for their spending and their saving short, medium, and longer term.

SEANA SMITH: Does this, at all, change the underpinnings here of the bull market? Does that at all make you question just in terms of the upside that we could see here at this stage of the cycle?

PENNY PENNINGTON: Well, this has been quite a frothy market. We do expect volatility. Volatility is created by this kind of CPI report. It's also, frankly, created by what's going to happen in terms of the election environment for the rest of the year. So it certainly has an effect on the way that we think about a strong stock market.

We do think that, while volatility is going to be there, that there's still room for this to go. The fundamentals are strong. Clients are getting rewarded now for fixed income investments. It seems that the goodness in the stock market seems to be broadening out a little bit beyond those Magnificent Seven. All those things are good things.

As interest rates stay a little higher, financial services companies their stocks remain in good shape.

BRAD SMITH: When you think about some of your clients and the propensity to either crowd into risk assets versus crowding into overcrowded trades, ones that are just super popular and seem like they make a lot of sense because everybody else is doing. Where do you see that balance playing out right now?

PENNY PENNINGTON: That is the benefit of having a financial advisor to take some of that emotion and take some of that FOMO out of it, FOMO or YOLO out of it, to really bring the conversation back to what's important to you, what's important to you as a client, what's important to your family.

The benchmark that really matters for your investment returns is your own benchmark, as it relates to your goals, how long you have to achieve those goals, and the risk that you want to take.

So we talked to our clients about what sorts of investments they ought to be in and the allocation of those investments. And every single one of those conversations is hyper personalized to that family.

SEANA SMITH: When it comes to those that maybe have a longer term horizon, are you still encouraging them to take a bit more risk to still bet on some of the names that had outperformed leading up to what we saw over the last couple of weeks? The fact that maybe you do see them potentially regaining some momentum.

PENNY PENNINGTON: Yeah. Fundamentally, the longer you have, all things remaining equal, the more risk appetite you ought to be prepared to take. And so yes. But that's a very personal thing. But yes, we do see more to run on the equity side. And that's a place to be allocating investment right now.

BRAD SMITH: Penny Pennington, Edward Jones CEO. Thank you so much for taking the time here with us today.

PENNY PENNINGTON: Pleasure to be with you.