投稿人
Wylie Tollette, CFA
Chief Investment Officer,
Franklin Templeton Investment Solutions
Tom Nelson, CFA, CAIA
Head of Market Strategy
Franklin Templeton Investment Solutions
Miles Sampson, CFA
Head of Asset Allocation Research,
Franklin Templeton Investment Solutions
Laurence Linklater
Senior Research Analyst, Franklin Templeton Investment Solutions
Preview
The removal of an extreme tail risk event from the litany of concerns facing markets sees us refine our thoughts around the more optimistic end of our range of growth scenarios. Optimism is building around transformative new technologies, but we continue to expect corporate earnings to come under pressure.
If inflation remains more persistent, then data-dependent central banks will continue hiking as our Magical Mystery Tour unfolds. The prospect of an early pivot toward lower rates is less likely than markets hope and could act as a drag on investor sentiment. This helps to reinforce our preference for a cautious view of stocks.
Major themes driving our views
Growth is below trend with an uncertain outlook
Recession risks are high for most developed economies but increasingly bifurcated between East and West. Headwinds to economic activity persist, accentuated by tightening monetary policy and lending standards. Our forecasts are for a period of weak growth to come, even where current activity levels have held up reasonably well.
Inflation risks are now more balanced
Inflation remains well above target levels, but evidence of peak headline inflation is clear as goods deflation returns, and housing appears set to become a drag. Sticky services inflation is expected to be balanced by demand destruction as the lagged effects of slower economic growth are felt.
Policy to remain restrictive
Most central banks maintain a primary focus on inflation and are accepting the consequences to growth. Policymakers remain prepared to address evolving crises and maintain financial stability. Central banks are approaching peak rate hikes and becoming more data dependent but will continue to moderate negative real rates and sustain restrictive conditions, in our view.
Practical positioning
Nimble management still required
Having started the year with an allocation preference away from equities, we have moved to a more cautious view of stocks. The level of premium discounted in risk assets does not correspond with the still-elevated probability of recession that we foresee. We continue to believe that a nimble investment style remains appropriate.
Select opportunities in equity markets
We have eliminated our more constructive view of US equity markets and returned to a modestly cautious stance on European markets. In both cases, persistent headwinds to profits temper our optimism. In contrast, we find greater attractions in China, where the economy should benefit from the removal of zero-COVID restrictions.
Bond valuations have improved
Our longer-term analysis shows that the return potential from global bonds, including generally lower-risk government bonds, has improved. Once the current policy-tightening environment is completed, it is likely that government bonds will again exhibit more of a risk-dampening effect. Until then, we see attractions in the appeal of a currently higher yield from holding cash.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. The positioning of a specific portfolio may differ from the information presented herein due to various factors, including, but not limited to, allocations from the core portfolio and specific investment objectives, guidelines, strategy and restrictions of a portfolio. There is no assurance any forecast, projection or estimate will be realized. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as the prices of bonds in an investment portfolio adjust to a rise in interest rates, the value of the portfolio may decline. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments. Investments in emerging markets, of which frontier markets are a subset, involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. Because these frameworks are typically even less developed in frontier markets, as well as various factors including the increased potential for extreme price volatility, illiquidity, trade barriers and exchange controls, the risks associated with emerging markets are magnified in frontier markets. Derivatives, including currency management strategies, involve costs and can create economic leverage in a portfolio which may result in significant volatility and cause the portfolio to participate in losses (as well as enable gains) on an amount that exceeds the portfolio’s initial investment. A strategy may not achieve the anticipated benefits, and may realize losses, when a counterparty fails to perform as promised. Currency rates may fluctuate significantly over short periods of time and can reduce returns. Investing in the natural resources sector involves special risks, including increased susceptibility to adverse economic and regulatory developments affecting the sector—prices of such securities can be volatile, particularly over the short term. Investment in the commercial real estate sector, including in multifamily, involves special risks, such as declines in the value of real estate and increased susceptibility to adverse economic or regulatory developments affecting the sector.