October has lived up to its reputation as a volatile month as concerns about rising US interest rates, slowing growth in China and upcoming US midterm elections have spooked many investors. Franklin Equity Group offers a few words on the recent turmoil, why volatility can unlock compelling opportunities and why the investment team still sees a compelling case for technology companies.
By Franklin Equity Group
Uncertainty related to trade tensions, concerns about global growth (as China’s recent gross domestic product report disappointed market participants), and the pace and magnitude of future interest rate increases have contributed to market volatility over the past few weeks.
In addition, upcoming US midterm elections and geopolitical news events may be influencing investor behavior.
We continue to believe that the global economy provides a supportive environment for corporate fundamentals, as evidenced by revenue, earnings and cash flow growth across myriad industries.
Across our US investment strategies, we seek to invest in companies we believe have strong platforms, are competitively well-positioned, and have long-term growth prospects that are underappreciated or not recognized by the market. In doing so, we attempt to look through short-term market volatility to opportunistically take advantage of market weakness within our portfolios.
We consistently revisit our positions to ensure our investment theses remain intact and determine whether adding to or reducing our holdings is warranted.
October’s market selloff in the United States has been broad-based, with returns of -8% or below across all sectors with the exception of traditionally defensive Utilities and Consumer Staples, both of which posted positive low-single digit returns month-to-date through October 24, 2018.1
Cyclically-oriented Materials (-13.0%), Energy (-12.5%), Consumer Discretionary (-12.2%), and Industrials (-11.6%) sectors have underperformed the broader US market (S&P 500 Index: -8.76%) month-to-date.2
We’ve received a number of inquiries about the information technology sector in particular, which is well-represented within several of our strategies. The S&P 500 Information Technology sector was up 20.62% year-to-date through September 30, 2018; the sector was down 10.76% month-to-date through October 24, 2018.3