What happened
Money-management company Franklin Resources (BEN +1.74%) was down big on Tuesday, falling as much as 7.2% at approximately 12:47 p.m. ET. By 1:15 p.m. ET, it was still down roughly 6.8%, trading at around $24.93.
It was bad day for the markets -- at least in the morning session. The Dow Jones Industrial Average was down roughly 840 points at 1:15 p.m. ET, a 2.6% drop, while the S&P 500 was down 2.9%, and the Nasdaq dropped 3.8%.
So what
The markets were down overall on worse-than-anticipated inflation news. The U.S. Bureau of Labor Statistics released its Consumer Price Index (CPI) for August, which showed inflation rose slightly, up 0.1% to 8.3%, compared to July. While it was down year over year from last month, when it was 8.5%, it was above the 8.1% that had been estimated.
NYSE: BEN
Key Data Points
The reason it was down year over year was related to a drop in gas prices. But when you look at the core CPI, which strips out energy and food prices, inflation was up 0.6% -- the first acceleration of the core CPI in six months.
This is all bad news for the market, as it means the Fed will continue its aggressive strategy to raise rates and reduce inflation. But Franklin had some bad news of its own on Monday, as assets under management dropped 3% in August to $1.38 billion on net outflows and market depreciation.
Now what
This isn't a great market for pure-play asset-management companies like Franklin Resources, which runs the Franklin Templeton funds, among other fund families. Not only does it feel the impact of market depreciation on its assets from the down market, but investors are less likely to invest in their funds or add to their positions and more likely to take redemptions -- which is why they saw net outflows.
It's why Bank of America downgraded the stock to underperform last week and lowered its price target to $25 from $28. The BofA analysts cited declining net flows and the expectation for that to continue in the near term, reported the Fly.
Franklin is a good dividend stock and a Dividend Aristocrat, but don't expect much in terms of returns.
