John’s Take:
Sticking to the technical helps navigate choppy markets.
Market Volatility Sparks Uncertainty, But Fidelity Managers Remain Focused on Fundamentals
The markets have seen a spike in volatility over the past month, driven by a range of factors including weaker-than-expected U.S. economic data, growing recession fears, and shifting expectations around Federal Reserve policy. The July jobs report in particular has fueled concerns about a potential slowdown in the labor market.
However, Fidelity’s portfolio managers are emphasizing the importance of maintaining a measured, research-driven approach amidst the turbulence. As David Wolf and David Tulk note, “Recent volatility was likely exacerbated by stretched market positioning…but these events have caused fear in markets. Events like these serve as a reminder to continue focusing on the managers’ four-pillar research-based investment framework.”
This framework prioritizes in-depth analysis of economic and market conditions, sentiment, valuation, and bottom-up fundamentals. Managers like Adam Kramer are remaining patient and looking to take advantage of any temporary mispricing or overreaction in asset classes, rather than making outsized directional bets.
Notably, many Fidelity managers see the recent market sell-off as more technically-driven than reflective of deteriorating economic fundamentals. As Will Danoff observes, “The economy remains robust, and his portfolio’s larger-than-benchmark positions in market-leading companies continue to show strong fundamentals.” Similarly, Steve Dufour is focused on enhancing long-term holdings in companies with durable earnings growth.
The portfolio teams are also emphasizing the importance of diversification and flexibility in navigating uncertain environments. As Mark Schmehl states, “Adaptability is key in managing the portfolios while navigating periods of market volatility, which are a natural part of equity investing.” His strategies are designed to capture opportunities across the full market spectrum.
Fidelity’s fixed income managers, Michael Plage and Jeff Moore, note that while the Fed may soon enact rate cuts, the context matters – cutting to stimulate a weakening economy is very different than a “mid-cycle adjustment.” They remain focused on their proven, multi-faceted investment process.
In the cryptocurrency space, Fidelity’s Head of Research Reetu Kumra highlights the asset class’s growing maturity and reduced correlation to traditional risk assets. While acknowledging crypto’s inherent volatility, she sees a role for a modest allocation within diversified portfolios.
Ultimately, Fidelity’s experienced managers are remaining disciplined and level-headed in the face of market uncertainty. They are leveraging their robust research capabilities to identify compelling long-term opportunities, rather than making reactive decisions driven by short-term noise. This measured, fundamentals-oriented approach has served them well through previous periods of volatility.
The report discusses recent market volatility and how Fidelity portfolio managers are responding.
Key points:
- Market volatility has intensified following weaker U.S. economic data, especially the July jobs report. This has heightened recession fears and expectations for Federal Reserve rate cuts.
- Fidelity managers are emphasizing the importance of a research-driven, diversified investment approach to navigate the volatility. They are looking to take advantage of temporary market mispricing rather than making big asset allocation bets.
- Managers note the economy remains robust overall, with the market valuation appearing relatively attractive. They are focused on upgrading portfolio holdings in high-quality, leading companies.
- While acknowledging short-term uncertainty, managers express confidence in their ability to identify compelling long-term investment opportunities amidst the volatility.
- The report also includes commentary on the crypto market, which has seen notable gains in 2024 despite the broader market turbulence.
The summary highlights Fidelity’s measured, research-oriented approach to managing client portfolios through periods of market stress. It emphasizes their focus on fundamentals and long-term compounding rather than making reactive changes.
Source: Fidelity Perspectives
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