Weekly Market Snapshot

16 April 2018

Global Trade: A Show-Me Market "We will make great progress together!"

- President Donald Trump, tweeting in response to China's President Xi Jinping's speech on global trade

... The week in review:

The Show – Don’t Tell – market The news flow over the past two weeks was relentless, reaching well beyond the gossip pages into matters of consequence: trade policy, military stance in the Middle East, European monetary stance, the newly-changed verbal style of the Fed, and potential come-uppances for two of the largest companies in the S&P 500, Amazon and Facebook.

But the VIX index fell during all this, from a high of 25.7 during the afternoon of April 2 to 17.4 mid-afternoon on Friday, April 13th; for the same two-week period, the S&P 500 itself was up just under 1%, though not in a straight line.

Which raises the question: has the U.S. equity market become, at least for the past two weeks, increasingly immunized to talk, rather than action?

Global oil: Fast and furious Crude oil is having a good week, if you’re a seller; Brent and West Texas Intermediate Crudes rose about 7.7% each, and now stand at $72.44 and $67.22 respectively.1 That’s the highest in over three years, when crude prices fell over 60% during the latter half of 2014, reaching as low as $44 before recovering – if briefly. Primary reasons: OPEC falling below its own production ceilings; sanctions on Russia; and the prospect of relaxed fuel efficiency standards in the U.S.

Venezuela, on the other hand, is in no position to benefit directly. According to one report quoted by Bloomberg, the country’s oil production capability has now fallen back to the level it achieved 69 years ago. Bloomberg News also reports some oil industry workers dependent on government-supplied food boxes, due to the fallen value of their wages.

U.S. inflation: Breaking on through At last, year-over-year consumer price gains rose above 2%, with the headline figure reaching 2.4% for the 12 months ended March 30, and 2.1% ex food and energy. Some credit “base effects”, meaning that last year’s figures were so low that a small rise generated a large percentage gain. Others credited an end to heavy discounting in mobile phone plans. Whatever the reason, the numbers weigh slightly in favor of those members of the Federal Open Market Committee who would prefer to start raising rates sooner rather than later. The next FOMC meeting will be on May 1-2; the June 12-13 meeting will close out with a a revised economic forecast and a press conference.

China: Free Trade Advocates Tuesday April 10 brought a conciliatory speech by President Xi Jinping, assuring listeners of a “new phase of opening up”, including pledges of opening the country’s banking and auto manufacturing sectors to increased foreign competition. In reaction, U.S. President Donald Trump tweeted that he was very thankful; for his “kind words on tariffs and automobile barriers”, and that “We will make great progress together!”.

1 Source: Bloomberg, April 13 2018, 2:45 PM EDT.

... CHART OF THE WEEK:

Volatility: Angels in the details

Chart of the week

Source: Bloomberg, April 12, 2018. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

The bottom line:

  • By most measures, 2018 has given stock investors a rough ride. For a mostly break-even year, markets have generated two significant downdrafts,2 one of which, at -10.2%, qualifies as a bona fide correction. With a range of 8.98 to 50.2, the CBOE S&P500 Volatility Index (the Vix) reflects this year’s choppy waters.
  • The common belief that high volatility means lower returns is borne out by looking at both indexes broken out by week.  For the 15 trading weeks in 2018 so far, when volatility jumped, index returns fell.
  • And the 11 industry groups produced narrow return dispersion, ranging from 0.69% (Materials) to 0.02% (Financials).
  • But within the index overall, there was a very different tale to tell: the top 5 stocks3  rose between 33% and 61% each; the bottom five fell between -26% and -39%.4
  • The bottom line: Market turbulence can generate substantial opportunities as well as substantial risks. But an overall index can cloud that view – and might preclude taking full advantage of available opportunities.
  • Active, research-driven investment management looks beyond indexes, and within sectors to seek value the market might misprice – or overlook.

The chart:

  • The chart shows, between January 5 and April 12, 2018, the weekly price returns of the S&P 500 Index, as well as the weekly values of the CBOE S&P 500 Volatility Index (the VIX).

2 All data Source: Bloomberg. For the S&P 500, January 16 – Feb 8, 2018, -10.16%; March 9 – March 23, -7.12%.
3 Netflix, XL Group, Seagate Technology, CSRA, Red Hat
4 Incyte, Albermarle, Signet Jewelers, Patterson Cos, L Brands


DEFINITIONS:

The S&P 500 Index is an unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the U.S.

The CBOE Market Volatility Index (VIX) was introduced in 1993 by the Chicago Board Options Exchange (CBOE) to measure the implied volatility of the U.S. equity market. The index is calculated in real time using the Standard and Poor’s 100 Index (OEX) options.


IMPORTANT INFORMATION:

In the U.S. - INVESTMENT PRODUCTS: NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE

All investments involve risk, including possible loss of principal.

Yields and dividends represent past performance and there is no guarantee they will continue to be paid.

Derivatives, such as options and futures, can be illiquid, may disproportionately increase losses and have a potentially large impact on Fund performance.

A credit rating is a measure of an issuer’s ability to repay interest and principal in a timely manner. The credit ratings provided by Standard and Poor’s, Moody’s Investors Service and/or Fitch Ratings, Ltd. typically range from AAA (highest) to D (lowest). Please see www.standardandpoors.com, www.moodys.com, or www.fitchratings.com for details.

Forecasts are inherently limited and should not be relied upon as indicators of actual or future performance.

High yield bonds are subject to increased risk of default and greater volatility due to the lower credit quality of the issues.

U.S. Treasuries are direct debt obligations issued and backed by the "full faith and credit" of the U.S. government. The U.S. government guarantees the principal and interest payments on U.S. Treasuries when the securities are held to maturity. Unlike U.S. Treasury securities, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the U.S. government. Even when the U.S. government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.

An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Legg Mason nor any of its affiliates guarantees any rate of return or the return of capital invested. 
Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls.

International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.

Past performance is no guarantee of future results.  Please note that an investor cannot invest directly in an index.
Unmanaged index returns do not reflect any fees, expenses or sales charges.
The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice.  Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not  take into account the particular investment objectives, financial situation or needs of individual investors.
The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Legg Mason or its affiliates or any of their officer or employee of Legg Mason accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Legg Mason. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of, and observe such restrictions (if any).
This material may have been prepared by an advisor or entity affiliated with an entity mentioned below through common control and ownership by Legg Mason, Inc.  Unless otherwise noted the “$” (dollar sign) represents U.S. Dollars.
This material is only for distribution in those countries and to those recipients listed.
All investors in the UK, professional clients and eligible counterparties in EU and EEA countries ex UK and Qualified Investors in Switzerland.
Issued and approved by Legg Mason Investments (Europe) Limited, registered office 201 Bishopsgate, London EC2M 3AB. Registered in England and Wales, Company No. 1732037. Authorized and regulated by the Financial Conduct Authority. Client Services +44 (0)207 070 7444. 
All Investors in Hong Kong and Singapore:
This material is provided by Legg Mason Asset Management Hong Kong Limited in Hong Kong and Legg Mason Asset Management Singapore Pte. Limited (Registration Number (UEN): 200007942R) in Singapore.
This material has not been reviewed by any regulatory authority in Hong Kong or Singapore.
All Investors in the People’s Republic of China ("PRC"):
This material is provided by Legg Mason Asset Management Hong Kong Limited to intended recipients in the PRC.  The content of this document is only for Press or the PRC investors investing in the QDII Product offered by PRC’s commercial bank in accordance with the regulation of China Banking Regulatory Commission.  Investors should read the offering document prior to any subscription.  Please seek advice from PRC’s commercial banks and/or other professional advisors, if necessary. Please note that Legg Mason and its affiliates are the Managers of the offshore funds invested by QDII Products only.  Legg Mason and its affiliates are not authorized by any regulatory authority to conduct business or investment activities in China.
This material has not been reviewed by any regulatory authority in the PRC.
Distributors and existing investors in Korea and Distributors in Taiwan:
This material is provided by Legg Mason Asset Management Hong Kong Limited to eligible recipients in Korea and by Legg Mason Investments (Taiwan) Limited (Registration Number: (98) Jin Guan Tou Gu Xin Zi Di 001; Address: Suite E, 55F, Taipei 101 Tower, 7, Xin Yi Road, Section 5, Taipei 110, Taiwan, R.O.C.; Tel: (886) 2-8722 1666) in Taiwan. Legg Mason Investments (Taiwan) Limited operates and manages its business independently.
This material has not been reviewed by any regulatory authority in Korea or Taiwan.
All Investors in the Americas:
This material is provided by Legg Mason Investor Services LLC, a U.S. registered Broker-Dealer, which includes Legg Mason Americas International. Legg Mason Investor Services, LLC, Member FINRA/SIPC, and all entities mentioned are subsidiaries of Legg Mason, Inc.
All Investors in Australia:
This material is issued by Legg Mason Asset Management Australia Limited (ABN 76 004 835 839, AFSL 204827) (“Legg Mason”). The contents are proprietary and confidential and intended solely for the use of Legg Mason and the clients or prospective clients to whom it has been delivered. It is not to be reproduced or distributed to any other person except to the client’s professional advisers.
© 2017 Legg Mason Investor Services, LLC, member FINRA, SIPC. Legg Mason Investor Services, LLC is a subsidiary of Legg Mason, Inc.

Weekly Market Snapshot

9 April 2018

Trade, Jobs: Trump Cards? " …to the end, and at any cost."

- China’s Commerce Ministry on its official website on Friday, April 6, in response to President Trump’s statements about increasing U.S. tariffs aimed at China.

THE WEEK IN REVIEW...

U.S. trade: New style, new objectives? The week ended with China and the U.S offering new counter-reactions to each others’ counter-offers, with escalating rhetoric but a lack of specificity. It’s worth noting that many of the proposed tariffs proposed by the U.S. require periods of public commentary before they can come into force, giving companies and industries an opportunity to have their voices heard.

Financial market reaction has been telling. While the near nearest-term S&P futures contract dropped -1.66% Friday morning in Asia, the follow-through intra-day trading later in the day in New York and Chicago barely reacted after a weak open, appearing to pay more attention to the March jobs report than to the latest salvos on trade. As of 11:00 AM on Friday, the S&P 500 was off -0.96%. The Dow Jones Industrial Average, however, was off about 1.6%, falling 389 points to 24116.28. The disparity could be explained by the larger impact that any proposed tariff increase from either source could have on the largest U.S. companies, heavily represented in the DJIA.

U.S. fixed-income markets reacted slightly differently on Friday, with U.S. Treasury yields falling in the -5 basis point range on the longer end, That helped flatten the curve slightly, as longer-maturity yields fell more than on the short end, where additional Treasury issuance both recent and future, could be supporting yields. European sovereign yields also fell, but not radically; the yield on the 5-year Bund fell 2.4 basis points to -.1074%.

For more insight from Legg Mason’s investment managers, read: Trade war: What's at stake?

U.S. jobs: Goldilocks lite The March employment report mostly disappointed with respect to headline numbers: 102k for private payrolls vs. an expected 188k, unemployment rate up to 4.1% vs. 4.0% expected; little improvement in the underemployment rate at 8%; no improvement in the labor participation rate.

But one number was solid, if unexciting: average hourly earnings rose 2.7% year-over-year, somewhat higher than the roughly 1.7-1.8% inflation rate recently observed. And given the February report’s well-known volatility, the two-month net downward revision of 50K in overall nonfarm payrolls was less disappointing than the headline miss would indicate.

All this adds up to a perceived note of caution to a newly reshuffled and restaffed Federal Reserve, some of whose members have been looking for reasons to pick up the pace of interest rate hikes this year.

Eurozone: Peak growth? For the second quarter running, Eurozone GDP growth has remained unchanged, the unemployment rate for the region is 8.5% and retail sales growth year-on-year is 1.8%.

But GDP growth, though stable, is still at an annualized 2.7% -- suggesting that things are not so bleak. And though core consumer prices rose an estimated 1.4% for March, that’s an improvement from February. Early Eurozone manufacturing PMI remains solidly in growth territory, at 56.6, for the second month in a row, and even Retail PMI is now above breakeven, at 50.1. All of which suggests that growth is far from over, even if price growth is slow and unemployment is too high.

All data source: Bloomberg, as of Friday April 6, 2018, 10:00 AM – 1:00 PM ET

... CHART OF THE WEEK:

Volatility: U.S. Stocks: Focus on Fundamentals

weekly chart of the week

Source: Bloomberg, April 5, 2018. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

The bottom line:

  • In technical terms, 2018 has been a challenge for equities. The S&P 500 has breached its 200-day moving average twice, experienced one full-fledged 10%+ intra-day correction, and another 8.9% downward lurch. And markets’ sensitivity to the increased news flow has generated a burst of trading sessions with intra-day swings of 1% or larger.
  • But long term, it’s economic fundamentals that drive stock prices. And there, the picture has continued to improve – as have stock valuations.
  • Think about the -10.1% fall of the S&P 500 between January 28 and February 8. That drop was accompanied by a -17.6% fall in the forward P/E over roughly that same period. As the P in the P/E ratio was falling 10%, the E was rising enough to more than make up for the fall.
  • That means is that one key fundamental measure – projected earnings – was improving at the same time as stock prices were falling.
  • We’re now at the beginning of this quarter’s earnings reporting season. As of the end of March, 19 companies in the S&P 500 stocks have reported, with 16 beating, one meeting, and two missing consensus earnings estimates. 14 of 18 of the companies beat their estimates of sales.
  • This coming Friday, April 13th, the major banks will report (Citi, JP Morgan, Wells Fargo). Their profits and financial health will be scrutinized for signs of the country’s overall economic state.
  • The bottom line: With earnings climbing and stock prices falling, the conventional wisdom that stocks as a group are still too expensive is not quite as clear. All the more if one believes there will be an earnings boost from both increased government spending and reduced taxes.
  • Over and above this improving general market picture, some companies in the well-known indexes could surprise more than others. It takes a focused, dedicated research organization to tell the difference, and an active investing approach to take advantage of this knowledge to the benefit of investors.
  • The chart:

    • The chart shows, between April 5, 2006 and April 5, 2018, the projected P/E ratios of the S&P500 Index, based on consensus earnings estimates for the coming financial years.

DEFINITIONS:

The price-to-earnings (P/E) ratio is a stock's (or index’s) price divided by its earnings per share (or index earnings). The forward P/E ratio is a stock’s (or index’s) current price divided by its estimated earnings per share (or estimated index earnings), usually one-year ahead.

The S&P 500 Index is an unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the U.S. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges.


IMPORTANT INFORMATION:

In the U.S. - INVESTMENT PRODUCTS: NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE

All investments involve risk, including possible loss of principal.

An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Active management does not ensure gains or protect against market declines.

The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Legg Mason nor any of its affiliates guarantees any rate of return or the return of capital invested. 

Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls.

International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.

Past performance is no guarantee of future results.  Please note that an investor cannot invest directly in an index.
Unmanaged index returns do not reflect any fees, expenses or sales charges.
The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice.  Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not  take into account the particular investment objectives, financial situation or needs of individual investors.
The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Legg Mason or its affiliates or any of their officer or employee of Legg Mason accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Legg Mason. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of, and observe such restrictions (if any).
This material may have been prepared by an advisor or entity affiliated with an entity mentioned below through common control and ownership by Legg Mason, Inc.  Unless otherwise noted the “$” (dollar sign) represents U.S. Dollars.
This material is only for distribution in those countries and to those recipients listed.
All investors in the UK, professional clients and eligible counterparties in EU and EEA countries ex UK and Qualified Investors in Switzerland.
Issued and approved by Legg Mason Investments (Europe) Limited, registered office 201 Bishopsgate, London EC2M 3AB. Registered in England and Wales, Company No. 1732037. Authorized and regulated by the Financial Conduct Authority. Client Services +44 (0)207 070 7444. 
All Investors in Hong Kong and Singapore:
This material is provided by Legg Mason Asset Management Hong Kong Limited in Hong Kong and Legg Mason Asset Management Singapore Pte. Limited (Registration Number (UEN): 200007942R) in Singapore.
This material has not been reviewed by any regulatory authority in Hong Kong or Singapore.
All Investors in the People’s Republic of China ("PRC"):
This material is provided by Legg Mason Asset Management Hong Kong Limited to intended recipients in the PRC.  The content of this document is only for Press or the PRC investors investing in the QDII Product offered by PRC’s commercial bank in accordance with the regulation of China Banking Regulatory Commission.  Investors should read the offering document prior to any subscription.  Please seek advice from PRC’s commercial banks and/or other professional advisors, if necessary. Please note that Legg Mason and its affiliates are the Managers of the offshore funds invested by QDII Products only.  Legg Mason and its affiliates are not authorized by any regulatory authority to conduct business or investment activities in China.
This material has not been reviewed by any regulatory authority in the PRC.
Distributors and existing investors in Korea and Distributors in Taiwan:
This material is provided by Legg Mason Asset Management Hong Kong Limited to eligible recipients in Korea and by Legg Mason Investments (Taiwan) Limited (Registration Number: (98) Jin Guan Tou Gu Xin Zi Di 001; Address: Suite E, 55F, Taipei 101 Tower, 7, Xin Yi Road, Section 5, Taipei 110, Taiwan, R.O.C.; Tel: (886) 2-8722 1666) in Taiwan. Legg Mason Investments (Taiwan) Limited operates and manages its business independently.
This material has not been reviewed by any regulatory authority in Korea or Taiwan.
All Investors in the Americas:
This material is provided by Legg Mason Investor Services LLC, a U.S. registered Broker-Dealer, which includes Legg Mason Americas International. Legg Mason Investor Services, LLC, Member FINRA/SIPC, and all entities mentioned are subsidiaries of Legg Mason, Inc.
All Investors in Australia:
This material is issued by Legg Mason Asset Management Australia Limited (ABN 76 004 835 839, AFSL 204827) (“Legg Mason”). The contents are proprietary and confidential and intended solely for the use of Legg Mason and the clients or prospective clients to whom it has been delivered. It is not to be reproduced or distributed to any other person except to the client’s professional advisers.
© 2018 Legg Mason Investor Services, LLC, member FINRA, SIPC. Legg Mason Investor Services, LLC is a subsidiary of Legg Mason, Inc.

Weekly Market Snapshot

26 March 2018

Global trade: Tariff Talk “I will never sign another bill like this again"

- President Donald Trump, signing the Congressional spending bill.

THE WEEK IN REVIEW...

U.S. and China: Battle of the Lists Other than the tariffs on imported steel and aluminum, as yet there is no official list of what will be in the estimated $50 bn White House proposal President Trump mentioned in his press conference on Friday. That list, along with its exemptions, is scheduled to be announced in 15 days, if U.S. Trade Representative Robert Lighthizer makes his deadline. As of Friday, March 23, the plan is to have a period of public comment before any of these take effect.

But China now has its own list, announced on the heels of President Trump’s latest proposal, described as a response to the tariffs already in place. The $3 bn list includes a 25% charge on imports of pork and aluminum scrap. Wine, apples, ethanol and stainless steel pipes, among other items, would be taxed at 15%.

Both China and the U.S. have their own standby lists, apparently waiting to be triggered by each others’ actions. In passing, China mentioned its $1.17 trillion holdings of U.S. Treasury securities, but offered no suggestion that these would be involved.

Third parties stand to get caught in the crossfire, including Japan, a major steel exporter; and Australia, which exports raw materials and agricultural goods to China. Japan’s Nikkei 225 Stock Index fell -4.5% on Friday trading, and Japan’s TOPIX fell -3.6%. Australia’s All Ordinaries Index fell -1.9%. As for China, the Shanghai Composite fell 3.4%. In all three cases, the drops were more than 3 standard deviations below their 90-day averages.

The Fed: Powell’s first hike Chairman Jerome Powell’s first foray into the limelight featured very few surprises. The FOMC raised its Fed Funds target rate upper bound to 1.75%, a 25-basis point hike, approving the move unanimously (8-0).

But there were two changes of note. First, the FOMC’s joint economic and rate forecast, the “dot plot”, edged up slightly – which was viewed by keen-eyed Fed watchers as reflecting a slight tilt in favor of a more aggressive stance toward future rate hikes. That is, if the U.S. economy keeps charging forward.

The second change was in the style of the press conference. Though Mr. Powell is as cautious as his predecessor Dr. Yellen, his style is less academic, more direct, and briefer – the press conference was half the length of the previous briefing.

Brexit breakthrough, mostly Negotiators reached a milestone agreement on the political terms of a transition period – which had been a major stumbling block. The deal is for the transition period to last 21 months, ending in December 2020, and contains agreed terms about the future rights of EU citizens, fisheries access, and other contentious issues.

The joint press conference featured the UK Brexit minister David Davis and EU chief negotiator Michel Barnier, and was held in Brussels, perhaps reflecting that it was the UK which seemed to make many of the concessions.

One of the most contentious issues, the nature of the border between the EU’s Republic of Ireland and the UK’s Northern Ireland, was left unsettled; but both sides seemed interested in avoiding the construction of a “hard border.”

All data source: Bloomberg, as of Friday March 23, 2018, 12:00 – 1:00 PM ET

... CHART OF THE WEEK:

Volatility: Tariff Talk in Context


Chart of the week

Source: Bloomberg, March 23, 2018. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

The bottom line:

  • It’s human nature to react to each market vibration – but not all vibrations turn out to have the same ripple effect.
  • Consider the past 12 months. Since last March 23, US stocks, as represented by the S&P 500 and NASDAQ indexes, have moved over 2% several times intra-day over that period, after two years of relative calm.
  • Since the beginning of 2018, two periods of disruption, in early February and during this past week, continued the pattern of volatility already established in the previous months.
  • But a look at the CBOE S&P 500 Volatility Index (VIX) suggests that the early February downdraft was a much more notable event than the previous moves. Those days were marked by hypersensitivity to slightly larger-than expected wage growth, the collapse of a VIX-related ETF, and a technically vulnerable S&P500 price level.
  • And while the level of political tension around world trade has ramped up in recent days, the VIX suggests that early February could have been the high-water mark – unless, of course, the -2.5% to -4.5% downdraft in Asian markets on Friday are a harbinger for the US markets in the coming days.
  • Bottom line: It’s important to view each instance of market volatility on its own terms, rather than reacting the same for all.
  • And while the prospect of rising trade barriers with China – and elsewhere – could indeed affect company fundamentals such as profitability, not all companies in all regions will be affected the same.  And therein lies the opportunity for fundamentals-driven, disciplined active managers to seek to separate potential winners from losers in this sort of market environment.

The chart:

  • The chart shows, between March 23, 2016 and March 22, 2018, the daily percentage moves of the S&P500 Index and the NASDAQ Composite Index, along with the VIX for the same period.


DEFINITIONS:

The S&P 500 Index is an unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the U.S. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges.

The NASDAQ Composite Index is a market-capitalization-weighted index that is designed to represent the performance of NASDAQ securities and includes over 3,000 stocks.

The CBOE Market Volatility Index (VIX) was introduced in 1993 by the Chicago Board Options Exchange (CBOE) to measure the implied volatility of the U.S. equity market. The index is calculated in real time using the Standard and Poor’s 100 Index (OEX) options.


Important Information:

In the U.S. - INVESTMENT PRODUCTS: NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE

All investments involve risk, including possible loss of principal.

Forecasts are inherently limited and should not be relied upon as indicators of actual or future performance.

An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Active management does not ensure gains or protect against market declines.

The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Legg Mason nor any of its affiliates guarantees any rate of return or the return of capital invested.

U.S. Treasuries are direct debt obligations issued and backed by the "full faith and credit" of the U.S. government. The U.S. government guarantees the principal and interest payments on U.S. Treasuries when the securities are held to maturity. Unlike U.S. Treasury securities, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the U.S. government. Even when the U.S. government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.

Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls.

International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.

Past performance is no guarantee of future results. Please note that an investor cannot invest directly in an index.

Unmanaged index returns do not reflect any fees, expenses or sales charges.

The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice. Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not take into account the particular investment objectives, financial situation or needs of individual investors.

The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Legg Mason or its affiliates or any of their officer or employee of Legg Mason accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Legg Mason. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of, and observe such restrictions (if any).

This material may have been prepared by an advisor or entity affiliated with an entity mentioned below through common control and ownership by Legg Mason, Inc. Unless otherwise noted the "$" (dollar sign) represents U.S. Dollars.

This material is only for distribution in those countries and to those recipients listed.

All investors in the UK, professional clients and eligible counterparties in EU and EEA countries ex UK and Qualified Investors in Switzerland.
Issued and approved by Legg Mason Investments (Europe) Limited, registered office 201 Bishopsgate, London EC2M 3AB. Registered in England and Wales, Company No. 1732037. Authorized and regulated by the Financial Conduct Authority. Client Services +44 (0)207 070 7444.

All Investors in Hong Kong and Singapore:
This material is provided by Legg Mason Asset Management Hong Kong Limited in Hong Kong and Legg Mason Asset Management Singapore Pte. Limited (Registration Number (UEN): 200007942R) in Singapore.

This material has not been reviewed by any regulatory authority in Hong Kong or Singapore.

All Investors in the People's Republic of China ("PRC"):

This material is provided by Legg Mason Asset Management Hong Kong Limited to intended recipients in the PRC. The content of this document is only for Press or the PRC investors investing in the QDII Product offered by PRC's commercial bank in accordance with the regulation of China Banking Regulatory Commission. Investors should read the offering document prior to any subscription. Please seek advice from PRC's commercial banks and/or other professional advisors, if necessary. Please note that Legg Mason and its affiliates are the Managers of the offshore funds invested by QDII Products only. Legg Mason and its affiliates are not authorized by any regulatory authority to conduct business or investment activities in China.

This material has not been reviewed by any regulatory authority in the PRC.

Distributors and existing investors in Korea and Distributors in Taiwan:
This material is provided by Legg Mason Asset Management Hong Kong Limited to eligible recipients in Korea and by Legg Mason Investments (Taiwan) Limited (Registration Number: (98) Jin Guan Tou Gu Xin Zi Di 001; Address: Suite E, 55F, Taipei 101 Tower, 7, Xin Yi Road, Section 5, Taipei 110, Taiwan, R.O.C.; Tel: (886) 2-8722 1666) in Taiwan. Legg Mason Investments (Taiwan) Limited operates and manages its business independently.

This material has not been reviewed by any regulatory authority in Korea or Taiwan.

All Investors in the Americas:
This material is provided by Legg Mason Investor Services LLC, a U.S. registered Broker-Dealer, which includes Legg Mason Americas International. Legg Mason Investor Services, LLC, Member FINRA/SIPC, and all entities mentioned are subsidiaries of Legg Mason, Inc.

All Investors in Australia:
This material is issued by Legg Mason Asset Management Australia Limited (ABN 76 004 835 839, AFSL 204827) ("Legg Mason"). The contents are proprietary and confidential and intended solely for the use of Legg Mason and the clients or prospective clients to whom it has been delivered. It is not to be reproduced or distributed to any other person except to the client's professional advisers.

Weekly Market Snapshot

19 February 2018

The U.S. at Pre-Tariff Strength “I’d like to see the dollar a wee bit stronger than it is currently"

- Incoming White House economic adviser Lawrence Kudlow

... The week in review:

U.S. growth check: Pre-tariff edition. The headline figure for February’s month-over-month retail sales growth disappointed, at -0.1%, but ex- gas and autos, the number was a solid 0.3%. The same for housing starts, with headline growth disappointing at -7.0%. However, the shortfall was due mostly to multi-family units; single-family starts were solid.

But on balance, the figures brought more cheers than jeers. The industrial sector and its subset in manufacturing both beat estimates, capacity utilization rose to 78.1%, beating estimates. And one number closely watched by former Fed Chair Janet Yellen continued to show strength; the “quits rate”, a measure of “voluntary job separations initiated by the employee”, though down two-tenths of a percent below its 2017 peak of 2.3%, remained clearly on a growth path for the full year 2017 in the context of a solid above-expectation growth of 645k in job openings, to an all-time record of 6.31 million. The job opening figures are from January, but strong follow-through figures are now expected for February.

European inflation: Good news – for pessimists The disappointing inflation number for EU-wide consumer prices of 1.1% was a mixed blessing. As an indication of economic recovery, the figure was disappointing and below the European Central Bank (ECB) goal of 2%. But the major worry among many observers is less about current growth than about a premature ending of the ECB’s aggressive bond-buying program. And in that framework, a disappointing figure was widely viewed as a signal to the ECB to keep the aggressively stimulative program in place.

Germany: Fourth time’s a charm. Angela Merkel managed to create a ruling coalition after months of post-election wrangling, leaving her status as the longest-ruling European leader intact. But the agreement of her party with the Social Democrat Party (SPD) required significant concessions in terms of platform and appointees. It’s too early to tell what the impact will be on Merkel’s maneuvering room.

But one positive outcome is already clear: Germany is forthrightly pursuing a policy alliance with France on matters of concern to the European Union as a whole. Both Chancellor Merkel and her new SPD Foreign Minister Heiko Maas wasted no time heading to Paris to meet with their opposite numbers. Given the weakness of both France’s and Germany’s coalition governments, it’s unclear that significant outcomes will emerge. But their joint attempts at alignment are clear.

China: Solid growth in times of challenge Industrial output rose 7.2% from the same period a year earlier, according to the National Bureau of Statistics, solidly beating the estimated figure of 6.1%, as well as the previous month’s equivalent figure of 6.2%. Steel, coal and power output were responsible for the strength, despite a campaign against heavily polluting industries. Though January figures are understood to be inexact due to the timing of the lunar new year holidays, the strong figures are likely to add fuel to the tariff debate taking place in the U.S., and now elsewhere.

All data source: Bloomberg, as of Friday March 16, 2018, 12:00 – 1:00 PM ET

... CHART OF THE WEEK:

Emerging Markets: Busting the Dollar Myth

Chart of the week

Source: Bloomberg, March 15, 2018. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

 

The bottom line:

  • There’s growing concern about the fate of the U.S. dollar among investors in Emerging Market (EM) equities, largely based on to concerns that a falling dollar could hurt EM stock returns.
  • But recent history suggests that the story is more complex, and more interesting.
  • Over the past five years, beginning in January 2013, a rising dollar has been accompanied by rising returns for EM, with one notable exception - the 8-month period from May 2015 to. Feb 2016. After that, EM equities rose strongly, whether the dollar rose or fell.
  • A surprising detail: this held true for EM equities priced in both dollars and local currencies, both before and after the slump.
  • Explanations abound - from a shift in the mix of industries in emerging markets away from resources toward the more dollar-driven technology sector, to positive developments in specific countries with large index weightings.
  • Whatever the explanation, it’s clear that the dollar isn’t linked to EM equities in the way many have previously believed.
  • Bottom line: it takes a knowledgeable, experienced investor to avoid falling into the trap laid by broken assumptions, and to potentially benefit from, rather than falling victim to shifts in underlying fundamental factors. And active investing is one place that this sort of judgement can potentially deployed to investors’ advantage.

The chart:

  • The chart shows, between January 1, 2013 and March 15, 2018, the rise and fall of the MSCI Emerging Market Indexes in both US Dollar and local currency terms, along with the rise and fall of the U.S. dollar.


DEFINITIONS:

The MSCI Emerging Markets Index captures large and mid cap representation across 23 Emerging Markets (EM) countries. With 835 constituents, the index covers approximately 85% of the free float adjusted market capitalization in each country. The Index is available both in U.S. dollar terms and in terms of its constituent local currencies.

The Bloomberg Barclays U.S. Dollar Spot Index measures the value of the U.S. dollar relative to the exchange rates of six major world currencies (the euro, Japanese yen, Canadian dollar, British pound, Swedish krona and Swiss franc) which represent a majority of its most significant trading partners.


IMPORTANT INFORMATION:

In the U.S. - INVESTMENT PRODUCTS: NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE

All investments involve risk, including possible loss of principal.

An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Active management does not ensure gains or protect against market declines.

The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Legg Mason nor any of its affiliates guarantees any rate of return or the return of capital invested.

U.S. Treasuries are direct debt obligations issued and backed by the "full faith and credit" of the U.S. government. The U.S. government guarantees the principal and interest payments on U.S. Treasuries when the securities are held to maturity. Unlike U.S. Treasury securities, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the U.S. government. Even when the U.S. government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.

Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls.

International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.

Past performance is no guarantee of future results. Please note that an investor cannot invest directly in an index.
Unmanaged index returns do not reflect any fees, expenses or sales charges.
The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice. Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not take into account the particular investment objectives, financial situation or needs of individual investors.
The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Legg Mason or its affiliates or any of their officer or employee of Legg Mason accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Legg Mason. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of, and observe such restrictions (if any).
This material may have been prepared by an advisor or entity affiliated with an entity mentioned below through common control and ownership by Legg Mason, Inc. Unless otherwise noted the “$” (dollar sign) represents U.S. Dollars.
This material is only for distribution in those countries and to those recipients listed.
All investors in the UK, professional clients and eligible counterparties in EU and EEA countries ex UK and Qualified Investors in Switzerland.
Issued and approved by Legg Mason Investments (Europe) Limited, registered office 201 Bishopsgate, London EC2M 3AB. Registered in England and Wales, Company No. 1732037. Authorized and regulated by the Financial Conduct Authority. Client Services +44 (0)207 070 7444.
All Investors in Hong Kong and Singapore:
This material is provided by Legg Mason Asset Management Hong Kong Limited in Hong Kong and Legg Mason Asset Management Singapore Pte. Limited (Registration Number (UEN): 200007942R) in Singapore.
This material has not been reviewed by any regulatory authority in Hong Kong or Singapore.
All Investors in the People’s Republic of China ("PRC"):
This material is provided by Legg Mason Asset Management Hong Kong Limited to intended recipients in the PRC. The content of this document is only for Press or the PRC investors investing in the QDII Product offered by PRC’s commercial bank in accordance with the regulation of China Banking Regulatory Commission. Investors should read the offering document prior to any subscription. Please seek advice from PRC’s commercial banks and/or other professional advisors, if necessary. Please note that Legg Mason and its affiliates are the Managers of the offshore funds invested by QDII Products only. Legg Mason and its affiliates are not authorized by any regulatory authority to conduct business or investment activities in China.
This material has not been reviewed by any regulatory authority in the PRC.
Distributors and existing investors in Korea and Distributors in Taiwan:
This material is provided by Legg Mason Asset Management Hong Kong Limited to eligible recipients in Korea and by Legg Mason Investments (Taiwan) Limited (Registration Number: (98) Jin Guan Tou Gu Xin Zi Di 001; Address: Suite E, 55F, Taipei 101 Tower, 7, Xin Yi Road, Section 5, Taipei 110, Taiwan, R.O.C.; Tel: (886) 2-8722 1666) in Taiwan. Legg Mason Investments (Taiwan) Limited operates and manages its business independently.
This material has not been reviewed by any regulatory authority in Korea or Taiwan.
All Investors in the Americas:
This material is provided by Legg Mason Investor Services LLC, a U.S. registered Broker-Dealer, which includes Legg Mason Americas International. Legg Mason Investor Services, LLC, Member FINRA/SIPC, and all entities mentioned are subsidiaries of Legg Mason, Inc.
All Investors in Australia:
This material is issued by Legg Mason Asset Management Australia Limited (ABN 76 004 835 839, AFSL 204827) (“Legg Mason”). The contents are proprietary and confidential and intended solely for the use of Legg Mason and the clients or prospective clients to whom it has been delivered. It is not to be reproduced or distributed to any other person except to the client’s professional advisers.
© 2017 Legg Mason Investor Services, LLC, member FINRA, SIPC. Legg Mason Investor Services, LLC is a subsidiary of Legg Mason, Inc.

Weekly Market Snapshot

12 March 2018

It’s all about jobs "The fact that wages haven't picked up does make you wonder a little bit."

- Chicago Fed President Charles Evans

THE WEEK IN REVIEW...

U.S. jobs report: Looking up The report for February contained good news in the key metrics: non-farm payrolls up 313k vs. an upwardly-revised 239k; average hourly earnings for the trailing 12 months up a solid – but unthreatening – 2.6%; labor participation rate rose to 63% from last month’s 62.7%. Another positive: This latest 4.1% unemployment rate, unchanged since last month’s – in the face of rising labor participation – suggests that the workers who have renewed their job searches may be meeting with success.

Friday’s markets greeted the report relatively gently.1 Most European equity markets closed up for the day, with the Stoxx Europe 600 up 0.4% at the close; in the U.S., the DJIA rose over 315 points at mid-day, up about 1.3%, with similar moves for the S&P500 and NASDAQ Composite indexes. However, yields for US. fixed-income markets rose resolutely on the jobs news and were above the previous days’ U.S. close in the early afternoon. The U.S. 10-year briefly crossed 2.91% on the way up and was at roughly 2.89% at mid-day. The CBOE VIX Index continued its downward trend since its February 6 high; after plunging briefly, the index was at about 15.3 at mid-day, well below the psychologically important 20 mark.

Of course, the jobs report wasn’t the only news item involving U.S. employment. The new trade initiatives of the Trump White House added a level of uncertainty to an already tumultuous debate about economic policy. In addition, the ongoing speaking engagements of Federal Reserve (Fed) officers added a level of suspense about its new tone, lexicon and future policy moves.

Global Trade: TPP Lite Thursday saw the signing of a revised version of the Trans-Pacific Partnership, now a trade agreement among 11 Pacific Rim countries.2 Originally constructed to act as a challenge to China’s growing regional economic influence, the current version reflects the U.S. withdrawal from the agreement. With both the U.S. and China now outside the pact, it remains to be seen how the original plan will achieve its original objectives in the face of the global growth of bilateralism in trade.

U.S. Trucking: Pedal to the metal The U.S. trucking industry, already capacity-constrained, is attempting to meet rising demand by further increasing its supply. Orders by fleet managers for “Class 8” semi-trucks, the front part of the familiar tractor-trailer combo (called articulated lorries in the European Union), rose over 75% in February vs. February 2017.3 That’s 40,200 vs. 22,880 truck orders. But it’s not just capacity driving the orders; April 1 2018 is the deadline for trucking companies to adopt electronic logs (“ELDs”) in place of paper records. But there’s little question that ELDs wouldn’t be an issue if demand was soft.

1 All data source: Bloomberg, as of Friday March 9, 2018, 12:00 – 1:00 PM ET

2 Signatory countries of the current version of the Trans-Pacific Partnership are: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

... CHART OF THE WEEK:

Volatility: The New Normal?

Chart of the week

Source: Bloomberg, March 7, 2018. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

The bottom line:

  • The outbreak of volatility in February, coming after nearly two years of relative calm, came as somewhat of a shock – at least in emotional terms.
  • Part of the upset came from intra-day movements of prices – the spread between each day’s high and low.
  • The intra-day moves of the Dow Jones Industrial Average (“the Dow”) is a useful example. February 5, 2018 saw a swing of over 1,596 points, nearly three times as large as the previous day’s range, and over 50% larger than the intra-day range on October 10, 2008, in the midst of that year’s global financial crisis.
  • But in percentage terms, the record for intra-day moves for the Dow was still made in 2008; the Dow moved just over 12% on October 10, vs. 6.6% on February 5, 2018.
  • The CBOE VIX Index (“the Vix”), on the other hand, made its largest intra-day move for the decade, in points, on February 6, 2018 – along with its largest percentage move – 93%.
  • The percentage figures for the Vix, however, are particularly misleading because the index itself measures volatility, not just price. That’s why the intra-day high for the Vix was on October 24, 2008 (89.5), not on February 6, 2018 (50.6).
  • The bottom line: Volatility isn’t always what it seems.  That’s all the more reason to take volatility into account when making investment decisions for the long run, and to make sure that any investment plan is sufficiently diversified.

The chart:

  • The chart shows, between June 30 2017 and March 7, 2018, the intra-day price swings of the Dow Jones Industrial Average, long with the intra-day highs of the CBOE VIX Index.

DEFINITIONS:

The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) is a measure of market expectations of near-term volatility as conveyed by S&P 500 stock index option prices.

The Dow Jones Industrial Average (DJIA, or the Dow) is an unmanaged index composed of 30 blue-chip stocks, each with annual sales exceeding $7 billion. The DJIA is price-weighted, reflects large-cap companies representative of U.S. industry, and historically has moved in tandem with other major market indexes such as the S&P 500.


IMPORTANT INFORMATION:

In the U.S. - INVESTMENT PRODUCTS: NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE

All investments involve risk, including possible loss of principal.

An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Active management does not ensure gains or protect against market declines.

The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Legg Mason nor any of its affiliates guarantees any rate of return or the return of capital invested. 

U.S. Treasuries are direct debt obligations issued and backed by the "full faith and credit" of the U.S. government. The U.S. government guarantees the principal and interest payments on U.S. Treasuries when the securities are held to maturity. Unlike U.S. Treasury securities, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the U.S. government. Even when the U.S. government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.
Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls.

International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.

Past performance is no guarantee of future results.  Please note that an investor cannot invest directly in an index.
Unmanaged index returns do not reflect any fees, expenses or sales charges.
The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice.  Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not  take into account the particular investment objectives, financial situation or needs of individual investors.
The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Legg Mason or its affiliates or any of their officer or employee of Legg Mason accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Legg Mason. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of, and observe such restrictions (if any).
This material may have been prepared by an advisor or entity affiliated with an entity mentioned below through common control and ownership by Legg Mason, Inc.  Unless otherwise noted the “$” (dollar sign) represents U.S. Dollars.
This material is only for distribution in those countries and to those recipients listed.
All investors in the UK, professional clients and eligible counterparties in EU and EEA countries ex UK and Qualified Investors in Switzerland.
Issued and approved by Legg Mason Investments (Europe) Limited, registered office 201 Bishopsgate, London EC2M 3AB. Registered in England and Wales, Company No. 1732037. Authorized and regulated by the Financial Conduct Authority. Client Services +44 (0)207 070 7444. 
All Investors in Hong Kong and Singapore:
This material is provided by Legg Mason Asset Management Hong Kong Limited in Hong Kong and Legg Mason Asset Management Singapore Pte. Limited (Registration Number (UEN): 200007942R) in Singapore.
This material has not been reviewed by any regulatory authority in Hong Kong or Singapore.
All Investors in the People’s Republic of China ("PRC"):
This material is provided by Legg Mason Asset Management Hong Kong Limited to intended recipients in the PRC.  The content of this document is only for Press or the PRC investors investing in the QDII Product offered by PRC’s commercial bank in accordance with the regulation of China Banking Regulatory Commission.  Investors should read the offering document prior to any subscription.  Please seek advice from PRC’s commercial banks and/or other professional advisors, if necessary. Please note that Legg Mason and its affiliates are the Managers of the offshore funds invested by QDII Products only.  Legg Mason and its affiliates are not authorized by any regulatory authority to conduct business or investment activities in China.
This material has not been reviewed by any regulatory authority in the PRC.
Distributors and existing investors in Korea and Distributors in Taiwan:
This material is provided by Legg Mason Asset Management Hong Kong Limited to eligible recipients in Korea and by Legg Mason Investments (Taiwan) Limited (Registration Number: (98) Jin Guan Tou Gu Xin Zi Di 001; Address: Suite E, 55F, Taipei 101 Tower, 7, Xin Yi Road, Section 5, Taipei 110, Taiwan, R.O.C.; Tel: (886) 2-8722 1666) in Taiwan. Legg Mason Investments (Taiwan) Limited operates and manages its business independently.
This material has not been reviewed by any regulatory authority in Korea or Taiwan.
All Investors in the Americas:
This material is provided by Legg Mason Investor Services LLC, a U.S. registered Broker-Dealer, which includes Legg Mason Americas International. Legg Mason Investor Services, LLC, Member FINRA/SIPC, and all entities mentioned are subsidiaries of Legg Mason, Inc.
All Investors in Australia:
This material is issued by Legg Mason Asset Management Australia Limited (ABN 76 004 835 839, AFSL 204827) (“Legg Mason”). The contents are proprietary and confidential and intended solely for the use of Legg Mason and the clients or prospective clients to whom it has been delivered. It is not to be reproduced or distributed to any other person except to the client’s professional advisers.
© 2017 Legg Mason Investor Services, LLC, member FINRA, SIPC. Legg Mason Investor Services, LLC is a subsidiary of Legg Mason, Inc.

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