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ClearBridge Investments - 4th Quarter Review

Posted by WrapManager's Investment Policy Committee
January 12, 2016


ClearBridge Investments, a Legg Mason company, addresses 2015 market volatility in their 4th quarter market overview and outlook. 

"Market Overview and Outlook

We can make this letter simple: Financial markets were challenging during 2015, with each day seeming like an independent event. We expect this will continue until oil prices stabilize. A global economic slowdown is being reflected in collapsing commodity prices, most notably oil. The Federal Reserve backed itself into a corner by overestimating the molasses-like recovery and raising short-term interest rates at the same time that industrial activity is weakening severely. The stock market has seen so many violent reactions to the smallest earnings or revenue misses versus analyst expectations. This turned the market into one of short-term spasms as opposed to rational investing. Yet not all is dire. Housing remains a pocket of strength and consumers are being helped by lower gasoline and heating prices. Retail sales should also begin to reflect the benefit of lower fuel prices. 

After OPEC created a monopolistic structure, we used to cheer for lower oil prices and hope for a sound domestic energy policy. Now we are of the opinion that the collapse in oil prices, while benefitting consumers, is creating havoc in too many industries. We believe the weakness in the industrial economy is far more widespread than simply declining oil prices would suggest. Just as expanded housing creates benefits for suppliers of materials, appliances and furniture manufacturers, plumbers and carpenters, etc., the negative effect of the oil collapse is pounding related industries. Transportation, valve and tubing suppliers, drilling equipment, well-service companies and many others are hurting. Layoffs have been widespread and severe. The single most important factor in helping the markets to stabilize is, in our opinion, stability in oil prices. 

With interest rates so low, it is hard to say that a quarter point rise by itself is terribly damaging. But directionally, it is not consistent with comments from so many companies that are struggling to maintain, let alone grow, revenues. There is a global slowdown in progress. The strong dollar, coupled with weakness in so many other countries, makes revenue growth from usual sources very difficult. 

In recent days, we have heard of much slower conditions from such economic bellwethers as Union Pacific, 3M, Caterpillar and Nucor Steel. The declines in transportation stocks are indicative of lower demand for the movement of goods. Thus a rise in interest rates, while small, is hardly a prescription for what ails the economy. 

A disturbing note came from a recent N.Y. Times survey of New Yorkers..." Download below to read full report.

To learn more about ClearBridge Investments and other Money Managers, give us a call at 1-800-541-7774 or contact us here to speak with one of WrapManager's Wealth Managers.

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Economic/Market Outlook ClearBridge Investments LLC