Global equity markets have seen a sharp correction, with the S&P 500 index having its worst day since February posing a pretty challenging backdrop for many asset classes, but experts at Janus Henderson say it’s just textbook “late cycle”.
Jenna Barnard, co-head of strategic fixed income, said the spike in US 10-year yields combined with attractive cash rates provides real competition to other asset classes.
“The equity sell-off in recent days follows a raft of downgrades in more cyclical sectors globally – autos, chemicals, semi-conductors, luxury goods and even packaging and cloud computing,” she said.
Oliver Blackbourn, portfolio manager in the UK-based multi-asset team, said low global valuations are not out of place as the market cycle matures.
In discussing the landscape of the market, Andy Jones, portfolio manager, global equity income at Janus Henderson, said value stocks had outperformed growth and momentum on a relative basis, driven by robust economic data and low inflation rates (by historical standards).
Jones said he expected economic activity to remain at healthy levels despite trade tariff concerns and political issues, which should feed through to continued corporate earnings, cashflow and dividend growth.
But, the current market weakness could provide attractive opportunities should investors focus on valuation and the dividend-paying capacity of companies.
Blackbourn said the tech sector was at the forefront of US equity market performance this year, so it was unsurprising that high-profile FAANG stocks were at the heart of the market tremor.
“After a period when it seemed these companies could do no wrong, there have been a series of negative headlines: privacy issues, security problems and concerns about strategy delivery,” he said.
“After an extended run, a little negativity is taking some of the gloss off these stocks. High valuations had left them vulnerable to a correction as we start the quarterly US reporting season.”
