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A Quarter Full of Sound and Fury, Signifying Nothing?

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A Quarter Full of Sound and Fury, Signifying Nothing?

Recent volatility doesn’t necessarily signal tough times in the equity market.

 

A brutal and swift decline in the equities market leading off 2016 was followed by a vigorous rally that brought the popular averages back to where they began the year, essentially unchanged.

ClearBridge Investments Co-Chief Investment Officer, Hersh Cohen, who has been managing equity portfolios for almost five decades, attributes the difficult equities market that started off the year to the precipitous drop in oil prices.

“We made reference to that in our year end comments and our year-end letter, where we wrote with a high degree of conviction that we expected difficult and erratic markets until oil prices stabilized.

You don’t want to get scared out by the violent intra-day or intra-week down moves or over-excited and chase up markets after vigorous rallies.”

“If oil prices continue to go down, the positive impact on consumers will not be enough to outweigh the negative impact on manufacturing companies that focus on well servicing, drilling, transporting, and equipment making for oil,” Mr. Cohen continued.

“The manufacturing sector has been in a recession, whereas the consumer has just started to see the benefits of lower gasoline prices. Personal savings has begun to increase and some debt is being paid down. It is not a coincidence that when the market hit bottom and started to rally it happened in concert with the oil market hitting bottom and rallying,” said Mr. Cohen.

Mr. Cohen notes, “We saw so many stocks have their own bear markets in 2015. It was a difficult year to make money. Some of those stocks recently bottomed and then had a good rally. You don’t want to get scared out by the violent intra-day or intra-week down moves or over-excited and chase up markets after vigorous rallies.”

Mr. Cohen advises, “When you’re dealing with volatile and unpredictable markets, the best approach, in my opinion, is to stick with a diversified portfolio. In the past, holding equities has been a good strategy for investors.”

While many investors experienced a challenging start to the year, the equity market seems to be headed in a better direction, according to Mr. Cohen.

 

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