Don’t Stumble in This Rocky Market Landscape

• 2 min read

Performance charts overlaid a cityscape at night.
Global markets have taken a hit in 2022, and savvy investors are changing their approaches to emphasize value stocks, high dividends and hedged equity strategies.

Get the latest in Research & Insights

Sign up to receive an email summary of new articles posted to AMG Research & Insights.

Performance charts overlaid a cityscape at night.

Stock values worldwide have tumbled so far this year as inflation soars, interest rates rise, earnings growth decelerates, economies slow and Russia invades Ukraine.

AMG believes it will be difficult for the S&P 500 by year-end to regain peak levels reached in January. Many high-flying market sectors will likely remain in correction territory. Still, savvy investors might improve returns over coming months by using a combination of value stocks, stocks with high dividend growth, and hedged equity strategies.

Value stocks remain relatively cheap compared to their history. At the same time, they offer broad diversification across both cyclical and defensive sectors. They pay and grow dividends, and they are less susceptible to high inflation and rising bond yields. U.S. small-cap value stocks are particularly attractive. With inflation riding high and nominal GDP growth (real economic growth plus inflation) likely to continue at a fast pace, small caps offer the best combination of cheap valuations and earnings growth.

Dividend growth stocks also look good. Currently, these equities often have dividend yields north of 2% (compared to the S&P 500 at about 1.4%) and are growing those dividends at a double-digit pace. Coupled with reasonable earnings growth, these stocks offer an attractive total return relative to the broader market. These companies often weather economic and market uncertainty with less volatility.

Hedged-equity strategies often prove lucrative when markets are volatile. These strategies attempt to capture some upside while protecting on the downside, and they can produce attractive returns as the broader equity markets struggle for direction.

Bottom line: Investors can return to more aggressive stances when they see a sustainable shift toward peace in Europe, inflation slows meaningfully and Fed policy becomes more dovish—all of which would provide relief to supply chains, commodity prices and consumers. In the meantime tilt to value stocks, dividend growth, and hedged equities as they are likely to do better than the broader equity markets.

This information is for general information use only. It is not tailored to any specific situation, is not intended to be investment, tax, financial, legal, or other advice and should not be relied on as such. AMG’s opinions are subject to change without notice, and this report may not be updated to reflect changes in opinion. Forecasts, estimates, and certain other information contained herein are based on proprietary research and should not be considered investment advice or a recommendation to buy, sell or hold any particular security, strategy, or investment product.

Get the latest in Research & Insights

Sign up to receive a weekly email summary of new articles posted to AMG Research & Insights.