- Multi-Asset Strategist
United States, Institutional
ChangeThe views expressed are those of the author, are based on available information and are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for different clients. While any third-party data used is considered reliable, its accuracy is not guaranteed. All investing involves risk. Investment markets are subject to economic, regulatory, market sentiment and political risks. All investors should consider the risks that may impact their capital, before investing.
The broad market sell-off is still evolving, but it’s a good moment to review the catalysts, the technicals at play, the fundamental picture, and what, if anything, allocators could consider doing. As of this writing, over the past three days, the Nikkei was down 20%, the yen was up 4.5%, the S&P 500 was down 4%, high-yield spreads were wider by around 50 bps, and the US 5-year Treasury yield was down around 35 bps. Bottom line: I think markets have overreacted relative to the fundamental backdrop.
Catalysts — As is often the case with significant sell-offs, this one has been driven by a confluence of factors. At the top of the list is the increase in the US unemployment rate from 4.1% to 4.3%, the Bank of Japan rate hike of 15 bps, and fear of a policy error by the Fed after it opted not to cut rates at last week’s FOMC meeting. Other concerns include some megacap tech earnings disappointments, the expanding Middle East conflict, and lower odds of a Trump presidency after Kamala Harris entered the race as the likely Democratic candidate.
Technicals — A long period of benign, trending markets can encourage investors to add risk. But when volatility spikes and trending markets reverse direction, forced selling may be triggered, which can exacerbate the moves as selling begets more selling. Selling by hedge funds and systematic strategies appears to have played a large role in the magnitude of the sell-off. Hedge fund gross leverage has been running at higher-than-normal levels. So-called “CTA” and “vol-managed” approaches, which “automatically” de-risk during sell-offs, seem to have played a sizeable role. Also, yen appreciation caused unwinds of yen carry trades where the cheap yen is sold to fund investments in higher-yielding instruments.
Fundamentals — The US employment picture has been weakening but is not, in my view, cause for panic. A host of indicators have been showing the labor market normalizing from overheated conditions, including fewer job openings and lower quit rates, slower hiring rates, and lower wage increases. As of this writing, 75% of companies have reported Q2 earnings, which have surprised to the upside across all sectors. The consumer sector has disappointed as consumers, especially the lower income cohorts, have gotten squeezed by high prices and are pulling back. We are watching credit card data, which suggests that consumer weakness has been migrating to higher-income consumers. As noted, tech earnings have been closely scrutinized and there have been some disappointments relative to expectations, but the long-term earnings growth trajectory remains intact in my view.
Investment implications
- While there has been some deterioration in fundamentals, I think the sell-off is being exacerbated by technicals. Central banks are also in a good position to lower rates and cushion the economy should fundamentals deteriorate meaningfully. On balance, I think this could be an opportunity to add risk in equities and credit, though it’s important to be mindful that technicals will need some time to normalize.
- The rally in US rates may warrant a pause in long-duration positions. Given that almost 125 bps of rate cuts are being priced by year end, I would consider turning neutral on duration and waiting for a better entry point to go long again.
- The sell-off in Japanese equities, in particular, seems like an overreaction to the BOJ’s rate hike. I would consider this an opportunity to gain exposure to this market.
- Remember the long term. While volatility can be unpleasant, these are also times to step back and consider what has really changed. To the extent that fast-acting players or strategies are forced to sell, this can be viewed as an opportunity for allocators with multi-year investment horizons.
Expert
Related insights
Showing
of
Insights Posts
Article
13 min
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Finding opportunity in a narrowing market
Continue readingMultiple authors
event
13 min
Article
2027-07-30
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Article
8 min
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Funded ratios on the rise: A mid-year action plan
Continue reading
event
8 min
Article
2027-08-31
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Article
11 min
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
The rally and the reality
Continue reading
event
11 min
Article
2027-07-30
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Article
4 min
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
The Iran war is changing the bond playbook
Continue readingBy
event
4 min
Article
2027-04-24
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Article
12 min
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
An insurer’s guide to the public/private credit convergence
Continue reading
event
12 min
Article
2027-06-30
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
URL References
Related Insights
Get our latest market insights straight to your inbox.
highlight_off
Thank you for your registration
You will shortly receive an email with your unique link to our preference center
Read next
Showing
of
Insights Posts
Article
13 min
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Finding opportunity in a narrowing market
In this quarter's outlook, our team explains why they believe insurers should maintain a moderately constructive but selective risk posture, emphasizing dependable income, downside resilience, liquidity, and reinvestment flexibility.
Multiple authors
event
13 min
Article
2027-07-30
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Article
8 min
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Funded ratios on the rise: A mid-year action plan
With corporate DB plans enjoying strong funded-ratio gains, we propose potential action steps, including refining liability-hedging strategies and choosing a path for surplus assets.
event
8 min
Article
2027-08-31
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Article
11 min
Outlook
Asset allocation
Multi-asset
Quarterly Asset Allocation Outlook
Artificial intelligence (AI)
Inflation
Global
Article
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
The rally and the reality
Can the markets remain resilient in the face of geopolitical disruption and inflation worries? We offer our views on the macro environment, AI-driven earnings, and the implications for equities, bonds, and commodities.
event
11 min
Article
2027-07-30
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Article
4 min
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
The Iran war is changing the bond playbook
Regional wars, inflation, and shifting fiscal priorities are creating new challenges for the bond market. Fixed income portfolio manager Brij Khurana explains why investors may need to look beyond traditional core bond markets for opportunities.
By
event
4 min
Article
2027-04-24
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Article
12 min
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
An insurer’s guide to the public/private credit convergence
Our experts explain why insurers are increasingly focusing on integrated public and private investment-grade credit strategies and highlight potential benefits and practical considerations.
event
12 min
Article
2027-06-30
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Article
5 min
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Funded status gains and asset allocation questions: An update on the corporate DB landscape
Members of our LDI Team share key takeaways from their latest analysis of US corporate pensions' funded status, derisking/rerisking activity, and ROA assumptions.
event
5 min
Article
2027-05-31
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Article
11 min
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Top of Mind: Next-generation diversifiers for a changing market landscape
Multi-Asset Strategist Adam makes a case for a set of “next-generation diversifiers” — asset classes that may help protect portfolios against equity downside and other risks in the market environment investors are likely to face in coming years.
event
11 min
Article
2028-05-31
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Article
13 min
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Focus on flexibility, selectivity, and income
Explore key asset allocation insights for insurers, including views on fixed income, equities, and other asset classes, as well as the latest regulatory updates.
Multiple authors
event
13 min
Article
2027-05-31
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Article
18 min
Asset allocation
Private investing
Strategic allocation
Portfolio construction
Risk management
Article
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Reframing private-equity risk: a fundamentals-based perspective
When it comes to sizing private-equity allocations, a debate has emerged about the best "yardstick" for volatility. Our experts propose an approach that grounds risk assessments in fundamentals and supports a role-based allocation framework.
Multiple authors
event
18 min
Article
2027-04-30
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Article
6 min
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
CLO equity’s role in asset allocation
We discuss CLO equity's role in asset allocation, highlighting its potential income and diversification benefits. In addition, we explore its potential fit alongside private equity, private credit, and public equity allocations.
event
6 min
Article
2028-05-01
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Article
12 min
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
One battle after another: Time to reset expectations?
How might the historic energy shock impact portfolio decisions in the coming months? We offer our take on the implications for equities, bonds, and commodities.
event
12 min
Article
2027-05-01
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
URL References
Related Insights
contact us
legal Information
© Copyright 2026 Wellington Management Company LLP. All rights reserved. WELLINGTON MANAGEMENT ® is a registered service mark of Wellington Group Holdings LLP. For institutional or professional investors only.
Enjoying this content?
Get similar insights delivered straight to your inbox. Simply choose what you’re interested in and we’ll bring you our best research and market perspectives.