Reacting to the Selloff
As monetary policy normalizes and the economic cycle matures, volatile days like those just experienced may become more common. However, the end of the cycle appears to remain in the distant future, allowing investors to find opportunity amid market anxiety.
Changes in the tax code that reward capital expenditures and the repatriation of profits held abroad should boost U.S. GDP as well as corporate productivity.
The current sell-off is overdone, notes Investment Strategist Jeff Schulze: inflation fears have been heightened by investor complacency, and the market can handle higher rates if the rise is not too rapid.
Strategies that embrace environmental, social and governance (ESG) principles are attracting more and more attention and assets -- a trend that's likely to expand going forward.
Investors seeking to have an impact on social and environmental issues should look to equity managers with the scale and expertise to influence corporate policies and capital allocation.
Chart of the Week
Source: Bloomberg, October 12, 2018. *Forward P/E values are based on Bloomberg Estimates Earnings Per Share. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.
Chart of the Week
Last week's markets left investors looking to economics for clues; Italy faced up to the EU; China's trade surplus ballooned
Economic conditions are shifting, but the ClearBridge Recession Risk Dashboard still points to expansion rather than recession.
Concerns about economic growth and geopolitical risks have weighed on international markets, but a softening of U.S.-China trade rhetoric and weakening dollar could spark a new wave of outperformance.
Fears that drug pricing will collapse have pushed many investors away from this sector, yet we see drug spending becoming less, not more, of an issue going forward: given current valuation levels, the potential for stronger returns is very real.
Water conservation and stewardship initiatives are helping companies from manufacturing to consumer goods to gain competitive advantages and manage future risks.
The contrast between current economic momentum and monetary policy in the U.S. versus the rest of the world has led to lower valuations in international and emerging markets (EM) stocks -- but a change could be coming soon.
Though trade war tensions could sidetrack investors, history suggests markets should rally after midterm elections -- with recession risks low going into Trump's third year in office.
The green light just given to the AT&T/Time Warner merger underscores the changing dynamics at work in the rapidly consolidating media sector.
Italy’s failure to form a government has caused bond spreads to widen sharply and could cause the ECB to delay its rate tightening plans. If so, that could pressure many European financial stocks and make the outlook for bank earnings growth much less bullish.
Investors have been gravitating toward stocks with price momentum, but higher interest rates should foster more diversity -- with value getting greater consideration as a driver of equity selection.
Trump’s antagonistic approach to redefining U.S. trade relationships is creating challenges now, but could eventually lead to a “trade peace” that expands global commerce.
Our Recession Risk Dashboard continues to signal that the likelihood of a pullback in the next 12 months is low -- a view supported by recent data on the volume of freight shipped via trucks.
ClearBridge has been and continues to be a leader in incorporating ESG into its investment process, as well as in working with companies to generate direct impact on ESG-related issues.
International stocks are gaining traction with investors -- but passive strategies may not be the best guide to opportunity. ClearBridge's Eliza Mazen explains why an active approach to diversifying international growth stocks may make more sense.
The Long View
None of the catalysts behind the recent pullback have changed the larger backdrop for the market. Fundamentals remain solid, and we believe the current pullback has largely run its course.
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