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September 2015 archive

September 2015

As the summer of 2015 winds down, the peace and calm of global equity markets have been disrupted by significant declines in stock markets around the world. Year to date, most markets are now down in dollar terms, with the S&P showing declines in the 6% range. While not completely unexpected (see our March commentary), these downturns have often been violent and and occasionally precipitous. Concerns have focused on China's economy, and dramatic falls in domestic Chinese stocks have become commonplace.

In our view, the China issue has been exaggerated and provides a convenient excuse for U.S. equities to come down to values consistent with this stage of the economic cycle. Following six years of almost continuous upward movement, prices for U.S. stocks are generally expensive, with the market priced for perfection. Faced with the prospect of higher interest rates, which will eventually provide an alternative to equities for yield-starved investors, and the likelihood of lower corporate profits, in many ways this adjustment makes sense, though the panicky selling we have seen in recent weeks hardly seems justified.

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