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comments on market volatility

UPDATED: March 2, 2018

At American Beacon Advisors, we partner with those we believe to be world-class investment managers and we have the opportunity to hear from those experts who are specialists in their respective asset classes. In our ongoing quarterly due-diligence meetings, which have been taking place in recent days, we discussed the recent pickup in volatility seen in global markets. In summary, here is what we’ve heard:

  • The recent increase in volatility, which began in early February 2018, was possibly sparked by expanded inflation expectations on the back of strong wage-growth numbers reported in January 2018 (2.9% year-over-year). The volatility potentially may cause the Federal Reserve (“the Fed”) to tighten (raise interest rates) faster than previously anticipated. Furthermore, Federal Reserve Chairman Jerome Powell in his first testimony before Congress on February 27 provided optimistic remarks about the economy. The markets appear to have interpreted Mr. Powell’s comments as being an increased possibility the Fed will raise rates four times this year. In addition, recent policy actions from the Trump administration have drawn mixed reviews from investors. On March 1, President Trump announced planned tariffs on steel and aluminum imports, prompting protectionist concerns while tax reform enacted in December 2017 has positively affected the business environment. We believe the uncertainty created by the current administration is providing a great opportunity for active managers. 
  • We also believe the market is simply correcting after a strong period of returns, which is normal and healthy. February 2018 was the first negative month for the S&P 500 Index since October 2016. Despite the negative return in February, the S&P 500 Index is cumulatively up 22.4% from the start of 2017 through March 1, 2018. We believe trying to time the market is a losing approach and suggest that investors consider owning diversified portfolios, which are better able to withstand these inevitable bouts of volatility. In volatile markets, dislocations are created, providing opportunities for active managers to exploit.
  • Underlying corporate fundamentals appear strong and high-yield default rates remain well below long-term averages. Despite the recent pullback in equity markets, the global economy remains firmly in a synchronized growth upswing, which we believe should be positive over the longer-term.


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