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Investors Remain Jittery After Biggest Equities Outflows Since March

ClearBridge has “tiptoed” back into stocks as investors worry about the U.S. election, the asset manager’s CIO told Institutional Investor.

Markets remain on edge as investors weigh whether to buy riskier assets ahead of the U.S. election.

Investors pulled $22.8 billion from equities in the week ending September 23, the largest weekly outflows since March, according to a recent Bank of America Corp. research report. Sentiment turned negative as anxiety rose over the upcoming presidential election, Scott Glasser, chief investment officer at ClearBridge Investments, said in a phone interview. 

Stocks are in the midst of a correction within a broader bull market, according to Glasser. He said investors are increasingly nervous the election process will be drawn out in the pandemic and the outcome may be contested.

“That wouldn’t be healthy for the country,” Glasser said. “Markets hate uncertainty.”

Markets have become “heavily dependent” on fiscal and monetary stimulus during the Covid-19 recession, as the world waits for a vaccine, according to Edward Moya, a senior market analyst with OANDA. Stimulus talks will likely be dragged out in Congress, as Democrats and Republicans debate what to include in next round of funding, he said by phone. 

“While no one is doubting that we’re going to get something, the question is, is it going to before the election or after?” said Moya. “The recovery is going to be messy.”

Even if a vaccine soon becomes available and 25 million Americans start taking it in the first quarter, more fiscal and monetary support will be needed, according to Moya. He said he expects central banks to become more accommodative next year in the U.S. and Europe.

“The stimulus trade is not going away anytime soon,” Moya said. That means it may be time for investors to wade back into certain areas of the stock market, he suggested, as the recent correction has provided buying opportunities. 

“We’ve kind of tiptoed back into some selective stocks,” Glasser said, “putting a little bit of money back to work.”

ClearBridge, which had about $149 billion of assets under management at the end of June, moved into some stocks in the payment processing, core property and casualty insurance, and the communication sectors, according to Glasser. “Sentiment getting negative is not necessarily such a bad thing for a stock market,” he said.

In a research report dated September 24, Bank of America investment strategists said that asset flows were “finally showing cracks in leadership of corporate bonds and U.S. tech.” They said tech funds last week saw their biggest redemption since June 2019. 

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While some tech stocks had become frothy, many investors still view them as winners in the pandemic — and probably coming out of it, according to Glasser. People’s behavior is probably permanently changed by Covid-19, he said, explaining that students, shoppers and the workforce have learned to rely more on tech to navigate the world remotely under lockdown.

As a result, mega-cap tech stocks have become a “safe haven” for some investors in the recent market tumult, according to Moya.

This month’s correction might be “as simple as unwinding short-term excesses” after the S&P 500 index was the most “overbought” since 2009, Bank of America strategists said in a research note dated September 25. While the S&P 500 rose about 1.6 percent Monday, to about 3,352, the index remained down 4.2 percent for September.

And investors remain concerned bigger trouble may be looming in markets.

“The worst still lies ahead for risk assets in market correction,” Scott Minerd, global chief investment officer of Guggenheim Partners, tweeted Monday.

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