The key points are below:

– Many observers have been pointing to the extreme run-up in equity prices over the last six months as a sign that stocks may have come too far, too fast. There is a growing perception that equities have become overbought and are expensive at current valuations.

– Additionally, some warning signs have begun to emerge that suggest we may be facing a near-term correction, such as the breakdown in the Chinese stock market and the possibility that the world is at the forefront of a new interest rate policy tightening cycle (evidenced by Israel’s recent decision to increase interest rates).

– From our perspective, all of these are valid concerns, but a number of positive factors must be considered as well. There is still a tremendous amount of uninvested money on the sidelines, and with cash earning basically zero and US government bonds yielding less than 4%, higher risk assets remain a more interesting proposition.

– From a fundamental perspective, economic growth, corporate earnings and credit conditions are all continuing to improve, which also creates a more equity-friendly environment. We have little doubt that markets will remain volatile, but as long as policymakers remain focused on the downside economic risks, we expect the positive factors will outweigh the negatives.


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