Scares Send Stocks South

Global stock markets kicked off the 2020s with small losses in January as a series of out-of-left-field risks dented investor enthusiasm.

The most recent issue is the Coronavirus outbreak (more on that below), but concerns over US-Iranian relations, internal US political turmoil, and disappointing economic growth readings are on top of investor minds as well.

In fixed income, these wide-ranging concerns drove interest rates lower over the month. Low starting yields remain a challenge.

Our Perspective: Successful investing results from patience, discipline, and a focus on the long-term. Staying the course is vital, regardless of whether recent events make you feel overly optimistic or pessimistic about the future.

We believe these events warrant monitoring, but they do not yet change our outlook. Entering the New Year, our outlook for global financial markets was relatively cautious, and it remains so today.

The Coronavirus and Other Health Care News

Originating in mainland China, the Coronavirus outbreak has begun to spread internationally despite extensive containment efforts.

The virus is proving to be particularly challenging for those with compromised immune systems, and it is thus far resistant to vaccines.

There are also several other health care issues generating concern, including ongoing opioid litigations, price transparency proposals targeting hospitals and insurers, and Congressional legislation to repeal a number of health care-related taxes.

Our Perspective: Regarding the Coronavirus specifically, there are not yet meaningful implications on investment in the health care sector. Chinese growth and production, however, may be adversely impacted as the virus spreads, further restricting economically vital travel and trade.

The other issues are worthy of close investor attention as well, but on a case-by-case basis, the problems remain navigable.

The sector should not be discarded as a whole, and opportunities remain for investors who deploy a selective investment approach.

For more, see our recent blog post, 3 Health Care Controversies and a Word on the Coronavirus.

Investor Case Study: Lululemon

In a fast-changing, highly competitive industry, Lululemon has been able to break out.

Over the past decade, the company has helped bring leisure athletic wear into the mainstream, driving vast growth in revenues and profits.

The brand continues to experiment by pushing further into ecommerce and men’s clothing, leveraging their existing base of dedicated customers.

Our Perspective: We believe Lululemon is well-positioned to continue capitalizing on the growing health and wellness lifestyle trend.

Their community-centered approach and commitment to customer loyalty remain strong, and they have significant room for further growth.

We view the Lululemon story as an example of why a selective investment approach focused on business fundamentals can drive successful long-term results.

For more, see our recent blog post, Lessons From a Growing Apparel Stock.

Our View
Economic Cycle		Global economic growth remains subpar, and the world economy appears to be reverting to its more sustainable slow growth pace; the US economy continues to exhibit signs of weakness and appears to be in a late cycle stage
Stock Market		Stocks remain near all-time highs, supported by elevated profit margins, valuations, and an abundance of global liquidity; against this backdrop, we continue to have modest long-term equity return expectations, barring a material change in global economic policies
Bond Market		Central bank policies remain extremely accommodative; in the US, the yield curve is no longer in a state of inversion, even as interest rates continue to sink lower; negative rates across foreign bond markets remain a challenge for long-term fixed income performance
Foreign Exchange		US dollar strength continues to persist as global growth concerns drive interest in US Dollar-denominated assets; over the long-term, we believe the dollar is more likely to weaken than strengthen from here
Important Issues on the Radar		Trade Tensions: the newly announced ‘Phase 1’ trade deal provides clear evidence that the trade war is not a one-way street, meaning that risks can be rolled back. Still, it is important to understand that the deep-seated issues have not changed, and an escalation remains a high impact risk to the entire global economy China Growth: the Coronavirus is shutting down and/or restricting travel and trade throughout China, further challenging an already soft economy

Indicates change

The data presented is for informational purposes only. It is not to be considered a specific stock recommendation.

All investments contain risk and may lose value. This material contains the opinions of Manning & Napier, which are subject to change based on evolving market and economic conditions. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

This newsletter may contain factual business information concerning Manning & Napier, Inc. and is not intended for the use of investors or potential investors in Manning & Napier, Inc. It is not an offer to sell securities and it is not soliciting an offer to buy any securities of Manning & Napier, Inc.