Market Volatility No Match for Strong Fundamentals

by: , CEO, Co–CIO, and Portfolio Manager, Epoch Investment Partners, Inc.

Despite the increase in market volatility over the past several days, we believe fundamentals remain strong and maintain our positive economic outlook.

Global Growth

  • We are witnessing the most synchronized global recovery since the 1960s.
  • The Organisation for Economic Co-operation and Development’s (OECD) leading indicator suggests strong earnings growth during the coming quarters.
  • Global manufacturing and service Purchasing Managers Indexes (PMIs) have been rising for over a year.
  • In the U.S., earnings growth is being turbo-charged by the recovery and the recent tax changes.

Inflation

  • Central bankers have successfully staved off deflation, while inflation remains below 2% in the G-7 and has declined markedly in emerging markets.
  • There is some upward pressure in the U.S. due to labor markets, but it is partially offset by technology-driven deflation.
  • Our base case is that this tug-of-war keeps inflation controlled.

Monetary Policy

  • We expect slow, gradual normalization of monetary policy that should be taken in stride by the markets.
  • Quantitative easing (QE) is done in the U.S. and U.K., and tapering has started in Europe.
  • There will be a headwind to further valuation expansion, but that does not mean valuations have to significantly compress.

The Markets

  • Quantitative tightening introduces more uncertainty, which will increase volatility.
  • Volatility creates better opportunities for active managers.
  • Stock correlations have fallen, which is also good for active managers.
  • The opportunities for stock pickers should hold during 2018.

The information contained herein is general in nature and is provided solely for educational and informational purposes. New York Life does not provide legal, accounting, or tax advice. You should obtain advice specific to your circumstances from your own legal, accounting, and tax advisors. Dividends fluctuate and are subject to change. There is no guarantee they will continue to be paid. While dividends may cushion returns in down markets, investments are still subject to loss of principal amount invested.

Opinions expressed are current opinions as of the date appearing in this material only. The information and opinions contained herein are for general information use only. MainStay Investments does not guarantee their accuracy or completeness, nor does MainStay Investments assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. There can be no guarantee that any projection, forecast, or opinion in these materials will be realized. Past performance is no guarantee of future results.

About Risk

All investments are subject to market risk, including possible loss of principal. There is no assurance that the investment objectives mentioned will be met. Diversification cannot assure a profit or protect against loss in a declining market.

Actively managed strategies employ portfolio managers who decide, within the constraints of a prospectus, how assets are invested. For this service, actively managed strategies typically charge higher fees than unmanaged or passively managed strategies.

The Group of Seven (G-7) is a forum of the world’s seven most industrialized economies. The G-6 was formed in 1975 and consisted of France, Germany, Italy, Japan, the United States, and the United Kingdom; Canada was invited to join the group in 1976. G-7 officials meet to discuss international economic and monetary issues.

New York Life Investment Management LLC engages the services of Epoch Investment Partners, Inc., an unaffiliated, federally registered investment advisor. MainStay Investments® is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services. Securities distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302. ALPS Distributors, Inc. is not affiliated with NYLIFE Distributors LLC. NYLIFE Distributors LLC is a Member FINRA/SIPC.

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William Priest, CFA

CEO, Co–CIO, and Portfolio Manager, Epoch Investment Partners, Inc.

Bill is Chief Executive Officer and Co-Chief Investment Officer of Epoch Investment Partners. He is a portfolio manager for Epoch’s global equity investment strategies and leads the Investment Policy Group, a forum for analyzing broader secular and cyclical trends that Epoch believes will

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