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.
The green light just given to the AT&T/Time Warner merger underscores the changing dynamics at work in the rapidly consolidating media sector.
The global economy has been firing on all cylinders, stocks have soared, and recessionary risks remain minimal. But could the Fed's plans to shrink its balance sheet spoil the party?
The view from ClearBridge
A pickup in merger and acquisition activity, higher oil prices and changes in leadership resulting from shifts in interest rates could unlock new opportunities for active equity managers in 2018.
The Long View
The positive economic momentum that lifted equities over the past year should continue into 2018, with higher interest rates and inflation posing the biggest risks, notes ClearBridge Investment Strategist Jeff Schulze.
Chart of the Week
Source: Bloomberg, S&P Dow Jones Indices, August 2, 2018. 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
July's employment report showed growth continuing; the Fed sounded optimistic about growth in its latest statement; the UK's rate rise was about normalization, not Brexit; China took some market-based steps in the currency market.
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.
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.
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.
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.
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.
Looking beyond the limits of traditional growth-stock benchmarks has allowed ClearBridge Portfolio Managers Margaret Vitrano and Evan Bauman to thrive in a crowded field.
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