For new equity investors, I believe this inevitable market correction is likely a good time to invest in stocks. For existing equity owners, this could be a good time to rotate into stocks and funds that better suit their objectives.
- 99% of stocks in the S&P 500 Index went down on March 9.1 It saw its biggest one-day loss (-7.6%) since 2008.2
- This is the first time that virtually all stocks went down on a major down day.
- Even stocks that were beneficiaries of low energy prices and low interest rates were down, showing that sellers were not differentiating much between potential winners and losers.
- This is the first time with a large selloff where so much of the market was in indexed vehicles, which is why I speculate that all stocks were down together.
- The high correlation between all stocks can create opportunities for all investors.
- The yield on stocks compared to Treasury bonds reached a record high.3
Most active fund managers have the opportunity to pick both winning and losing stocks. Passive investing buys or sells everything across the board. The prominence of passive investing has changed the market dynamics and provides an opportunity for active investors.
Important Legal Information
This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as of March 11, 2020, and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market.
Data from third party sources may have been used in the preparation of this material and Franklin Templeton Investments (“FTI”) has not independently verified, validated or audited such data. FTI accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments opinions and analyses in the material is at the sole discretion of the user.
Products, services and information may not be available in all jurisdictions and are offered outside the U.S. by other FTI affiliates and/or their distributors as local laws and regulation permits. Please consult your own professional adviser or Franklin Templeton institutional contact for further information on availability of products and services in your jurisdiction.
Issued in the U.S. by Franklin Templeton Distributors, Inc., One Franklin Parkway, San Mateo, California 94403-1906, (800) DIAL BEN/342-5236, franklintempleton.com—Franklin Templeton Distributors, Inc. is the principal distributor of Franklin Templeton Investments’ U.S. registered products, which are not FDIC insured; may lose value; and are not bank guaranteed and are available only in jurisdictions where an offer or solicitation of such products is permitted under applicable laws and regulation.
What Are the Risks?
All investments involve risks, including possible loss of principal. 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 prices of bonds in an investment portfolio adjust to a rise in interest rates, the value of the portfolio may decline. Actively managed strategies could experience losses if the investment manager’s judgement about markets, interest rates or the attractiveness, relative values, liquidity or potential appreciation of particular investments made for a portfolio, proves to be incorrect. There can be no guarantee that an investment manager’s investment techniques or decisions will produce the desired results.
Diversification does not guarantee protect or protect against risk of loss.
1. Source: FactSet, Standard & Poor’s 500 companies’ returns on March 9, 2020. Indexes are unmanaged, and one cannot invest directly in an index. Past performance is not an indicator or a guarantee of future performance. Important data provider notices and terms available at www.franklintempletondatasources.com.
2. Source: Bloomberg, S&P 500 Index as of March 10, 2020. Indexes are unmanaged, and one cannot invest directly in an index. Past performance is not an indicator or a guarantee of future performance. Important data provider notices and terms available at www.franklintempletondatasources.com.
3. Bloomberg, S&P 500 Index as of March 10, 2020. The S&P 500 Index dividend yield exceeded the US 30-year Treasury yield for the first time in over 10 years (by 82 bps). The previous highest spread was 70 bps in December 2008. Indexes are unmanaged and one cannot directly invest in an indesx. Past performance is not an indicator or a guarantee of future performance. Important data provider notices and terms available at www.franklintempletondatasources.com. Treasuries, if held to maturity, offer a fixed rate of return and fixed principal value; their interest payments and principal are guaranteed. One basis point is equal to 0.01%.