This August, global stock markets experienced significant fluctuations. Fortunately, these fluctuations turned out to be mere market noise, and a rebound quickly followed the initial panic. Japan’s Nikkei 225 Index saw its largest single-day drop, followed by a substantial rebound. A similar situation occurred in the US stock market, where disappointing employment and manufacturing data initially dampened market sentiment. However, with retail sales data exceeding market expectations, US stocks then regained their upward momentum. Slowdown in the US job market does not constitute a recessionIt is not uncommon for markets to experience sharp short-term fluctuations. We believe investors should adopt a diversified investment strategy, using a more flexible approach to navigate market turbulence and mitigate the impact of short-term volatility on their portfolios. By diversifying investments across stocks, bonds, and various asset classes, with a mix of long-term structural and cyclical investment themes, investors can better respond to different market conditions.With the US Federal Reserve (Fed) finally reducing interest rates as expected in September by 50 basis points, concerns about a potential recession in the US economy have arisen. The rise in US Treasury prices also reflect market apprehension regarding economic weakness.Despite recent market volatility, our baseline expectation remains a “soft landing” for the US economy. We believe that the increase in numbers in the US labour force is one of the reasons for the recent weakness in US employment data, partly affected by weather conditions. Overall, as long as inflation continues to move in the right direction and shows a downward trend, this will provide the Fed with sufficient flexibility to prevent an economic recession.Searching for value beyond tech stocksBased on our forecast of a higher likelihood of a “soft landing” for the US economy, we hold an overall positive outlook on the stock market. However, in response to market volatility, we believe that a more balanced investment strategy focusing on both growth and yield is more appropriate right now. Given the narrowing profit growth forecast gap between US tech stocks and other sectors, we maintain a neutral view on high-valued US tech stocks. Sectors with more attractive valuations may warrant greater attention from investors.From an investment theme perspective, we continue to prefer four major long-term investment themes: technology transformation, energy evolution, connected consumer, and transitioning societies. For the technology transformation theme, we still see growth potential in areas such as digitalisation, cloud computing, robotics, and cybersecurity. The connected consumer theme encompasses e-commerce, logistics and warehousing, data centres, and fintech-related companies, while the transitioning societies theme focuses on healthcare innovation, urbanisation, and smart cities.As for cyclical investment themes, we are in favour of commodities due to the recovery in demand and companies that possess pricing power in an inflationary environment.Positive bond outlook in a controlled inflation environmentThe controlled inflation environment will continue to enhance the role of bonds as a hedge against recession risk within investment portfolios. Additionally, as the yield curve gradually flattens, government bonds may regain their significant appeal as risk diversifiers. Based on these two factors, we are optimistic about the bond markets. Outside of US Treasuries, expectations for further interest rate cuts by the European Central Bank have spurred demand for bonds from issuers in interest-sensitive sectors.Meanwhile, investors may consider expanding their investment exposure beyond traditional bonds and into other asset classes for further diversification. For instance, securitised credit is currently one of our favoured asset classes. Compared to US investment-grade bonds, securitised credit can enhance the overall yield and credit quality of an investment portfolio while lowering duration risk.Want to search and invest in related funds?Open the WeLab Bank App and click【Featured Funds】to find out more!
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Schroders’ Insight: Capturing potential growth through diverse investment themes
