Beyond Bulls & Bears


Quick Thoughts: Banking, inflation, and the Fed: Where do we go from here?

Banking turmoil continues to rattle the global markets and investor confidence. Where are investment opportunities? Stephen Dover offers insights from our latest panel discussion with investment leaders across asset classes.

This post is also available in: Spanish

As the current banking “crisis” continues to unfold, I gathered five of our investment leaders to discuss potential investment opportunities across stocks, bonds, and alternatives like private credit and real estate.

Our panel includes views on equities from Scott Glasser, Chief Investment Officer, ClearBridge Investments; a fixed income outlook from Mike Buchanan, Deputy Chief Investment Officer, Western Asset; a multi-asset perspective from Ed Perks, Chief Investment Officer, Franklin Income Investors; commercial real estate implications from Jed Belford, Chief Investment Officer, Clarion Partners; and a private credit view from Rich Byrne, President of Benefit Street Partners. Below are my key takeaways from our discussion:

This is not a repeat of the global financial crisis (GFC). Today’s banking “crisis” is far less severe than 2008, and it’s not systemic. Indeed, the quality of overall bank assets and capital ratios are dramatically better. The central banks are now coordinating globally to offer banks daily access to the dollars they need to operate smoothly.[i] The “big iceberg” hitting financial markets is the dramatic rise of interest rates, following decades of low rates and inflation. What we are seeing now are the repercussions of the rise in rates. The challenge for Federal Reserve (Fed) Chairman Jerome Powell is balancing the need to fight inflation without causing more financial instability. As banks tighten lending standards, the Fed may have more maneuverability.

We see more opportunity in bonds than stocks in the near term. The higher income that bonds now provide looks especially appealing relative to stocks. While price/earnings ratios have fallen, we still think that earnings have further to fall. Any pullback in the equity markets should offer more selective buying opportunities. Investment-grade credit and some areas in high yield offer opportunities given today’s yields. This is a dramatic and welcome turnaround from 2022, one of the worst years in history for bond markets.

Our panelists’ optimism for fixed income extends to private credit as well. To be clear, credit markets remain treacherous in places. Much of the fallout from higher rates will not happen until companies need to refinance. That pain, however, translates into investment opportunities in both private and public fixed income.

The impact on stocks is deeper than perceived. While equity market indexes—particularly in the United States—have been relatively unscathed, that’s largely due to strong performance of large capitalization technology companies that investors recently crowded into for safety. Looking under the surface, there’s been a significant selloff in small company stocks and sectors like energy, industrials and cyclicals due to markets pricing in a higher chance of a recession. On a short-term basis, these sectors may be oversold. Although the market sees rising probabilities of a meaningful recession, the panelists agree that the highest likelihood is still for a milder recission. This may present bargains for equity investors.

Commercial real estate sectors are less corelated. Before the pandemic, commercial office space, apartments, industrial warehouses and retail shopping centers largely responded to broad macro-economic forces in a similar fashion. The pandemic changed that. First, with more people shopping at home, prospects for retail shopping dropped while demand for industrial warehouses skyrocketed. Second, work-from-home flexibility has dramatically changed the outlook for commercial office space. There will be opportunities in distressed office properties, after companies figure out what to do with their half-empty offices. The outlook for other areas of commercial real estate, however, look promising including: warehouses, biotechnology and multi-family housing.

For a replay of the webinar press here.

For a more in-depth review of the topics we discussed, stay tuned for our upcoming Global Investment Outlook.


All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in an investment portfolio adjust to a rise in interest rates, the value of the portfolio may decline. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors or general market conditions.

Changes in the financial strength of a bond issuer or in a bond’s credit rating may affect its value.

Investing in private companies involves a number of significant risks, including that they: may have limited financial resources and may be unable to meet their obligations under their debt securities, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of realizing any guarantees that may have obtained in connection with the investment; have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and changing market conditions, as well as general economic downturns; are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on the portfolio company and, in turn, on the investment; generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position.

Real estate securities involve special risks, such as declines in the value of real estate and increased susceptibility to adverse economic or regulatory developments affecting the sector.

Actively managed strategies could experience losses if the investment manager’s judgment about markets, interest rates or the attractiveness, relative values, liquidity or potential appreciation of particular investments made for a portfolio, proves to be incorrect. There can be no guarantee that an investment manager’s investment techniques or decisions will produce the desired results.

Diversification does not guarantee profit or protect against the risk of loss.


This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. This material may not be reproduced, distributed or published without prior written permission from Franklin Templeton.

The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The underlying assumptions and these views are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realized. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is not necessarily indicative nor a guarantee of future performance. All investments involve risks, including possible loss of principal.

Any research and analysis contained in this material has been procured by Franklin Templeton for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Data from third party sources may have been used in the preparation of this material and Franklin Templeton (“FT”) has not independently verified, validated or audited such data. Although information has been obtained from sources that Franklin Templeton believes to be reliable, no guarantee can be given as to its accuracy and such information may be incomplete or condensed and may be subject to change at any time without notice. The mention of any individual securities should neither constitute nor be construed as a recommendation to purchase, hold or sell any securities, and the information provided regarding such individual securities (if any) is not a sufficient basis upon which to make an investment decision. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.

Products, services and information may not be available in all jurisdictions and are offered outside the U.S. by other FT affiliates and/or their distributors as local laws and regulation permits. Please consult your own financial professional or Franklin Templeton institutional contact for further information on availability of products and services in your jurisdiction.

CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.



Get Content Alerts in My Inbox

Receive email alerts when a new blog is posted.