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Grant BowersVice President, Portfolio Manager, Research Analyst, Franklin Equity Group®
Concerns related to the potential economic impact from COVID-19 pandemic continue to weigh on financial markets; we’ve seen significant downward volatility as market participants attempt to assess its implications. While the situation is fluid and will surely and swiftly detract from global economic growth and consumer spending patterns over the next few quarters, we believe that ultimately the impact will be severe but short-lived. We believe an eventual recovery in growth in the US economy is inevitable, as our view of long-term fundamentals remains intact.
Assessing the duration and extent of the impact on the US economy is challenging at this time, but despite the uncertainty, we see several areas that could provide support in the coming weeks and months.
Our biggest concern, and one we are monitoring closely, is how the COVID-19 disruptions will impact US consumer behavior. Presently, containment measures (e.g., store and factory closures, travel restrictions and quarantines) are in effect to slow the spread of the virus. These measures are likely temporary in nature (months not years), though the duration of these measures is an important question.
The US consumer has been the driving force behind the economic expansion of the last decade, benefiting from low inflation, strong employment and rising wages. While we don’t see any long-term fundamental reason for a change to that backdrop, near-term data on consumer confidence and employment are expected to weaken significantly. Once these disruptions moderate, we will be actively evaluating the pace at which the return to normal daily life resumes.
Given the market environment, it is important to reiterate that corrections have been a routine occurrence throughout financial market history. These periods of market volatility and economic uncertainty are challenging to navigate as investors, but frequently have presented excellent investment opportunities for active managers with a careful eye toward risk management.
We are proceeding carefully, but already have been seeing opportunities to initiate or add to positions in what we consider to be high-quality, long-term growth companies. We will continue to keep our investment focus on high-quality companies identified through fundamental research.
As always, we seek those that we believe are best-in-class companies levered to multi-year growth trends and disruptive innovation themes. We believe these types of investments can weather the current volatility well and generate solid risk-adjusted investment performance over a long-term horizon.
All investments involve risk, including possible loss of principal. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions.
This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice.
The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. All investments involve risks, including possible loss of principal.
Data from third party sources may have been used in the preparation of this material and Franklin Templeton ("FT") has not independently verified, validated or audited such data. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments opinions and analyses in the material is at the sole discretion of the user.
Products, services and information may not be available in all jurisdictions and are offered outside the U.S. by other FT affiliates and/or their distributors as local laws and regulation permits. Please consult your own financial professional or Franklin Templeton institutional contact for further information on availability of products and services in your jurisdiction.
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