Research & Insight

With the federal government open after its longest shutdown on record, we will soon get a clear indication of how payrolls fared in September and October. The most recent data, through August, already showed a marked slowdown in job growth, and much of the alternative data released during the shutdown suggests that this weakness has likely continued. There are already a handful of labor market characteristics that are typically only seen around recessions. None, taken individually, is reliable enough to be confident that the U.S. economy faces a recession. But they will be important to monitor as new payroll data is released.

Navigating challenging market conditions requires an understanding of how different asset classes, investment styles, and sectors perform during periods of heightened volatility. While traditional defensive assets like Treasuries have provided protection in some downturns, their effectiveness has been inconsistent. Hedged-equity strategies that hold stable, reasonably-valued, high-quality stocks — particularly weighted toward defensive sectors like Consumer Staples and Healthcare, can be particularly useful to investors during periods of market loss and heightened volatility.

The strong performance of large-cap stocks over the past decade has left the market exceptionally top-heavy. By some measures, stock market capitalization has never been more concentrated among a handful of large stocks as today. Following periods of high market concentration, stock market returns are not only low over the subsequent decade, on average, they also tend to be highly volatile. Taken together, these characteristics – losses for Mega-Cap stocks, strong relative returns but low absolute returns for Non-Mega Cap stocks, and lots of market volatility – offer a potentially overlooked benefit for long-term investors choosing how to structure their portfolios.