AllianceBernstein L P : Finding the Middle Path in Extreme Equity Markets

Equity markets were jolted in January amid growing concerns about macroeconomic threats. For investors seeking more stable equity allocations, stocks "in the middle," with high-quality features and reasonable valuations, can help portfolios cope with volatility.

With inflation rising, fears that policymakers could tip economies into recession have eroded enthusiasm for stocks after three strong years. Hypergrowth names at the most expensive extreme of the US market were hit hardest. We believe these trends reinforce the need for defensive equity strategies to help reduce risk in a downturn and capture recovery potential.

In good times and bad, predicting macroeconomic and policy trends isn't a prudent strategy for equity investors, in our view. Instead, investors can seek to build a macro-resilient portfolio by investing in companies with features that are likely to withstand the key risks to equity markets. Today, those risks are interest rates/inflation, valuation and a decelerating growth outlook.