The global selloff continued this morning, sparked by a lack of policy response over the weekend in China. While clearly this sell off has reached proportions to which we have become unaccustomed, it is still well contained within normal correction bounds. The risk factors which investors are keying off of are:
The Deflationary Scare – While key commodities, including oil, are down significantly this scare looks much like 2014 and should begin to subside. However, stability in this complex will go a long way towards calming markets.
Policy Mistakes – Fears of central bank missteps leading to a deceleration in growth. It is clear that central bank policy will lag fundamentals for the foreseeable future. In other words no rate hikes.
Global Growth – Growth in the U.S. and Europe should remain on track. Key economic data points in the US continue to trend positively. The US housing market has reached new cyclical highs for both total home sales and housing starts. US employment numbers posted the 65th month in a row of positive job growth in July, along with a 2.1% increase in wages year over year. We continue to believe that we are in the middle to late stages of a bull market. Certainly, headwinds do exist which will continue to increase volatility. As long term investors however, we believe that staying the course is the best prescription and this market weakness is more of a buying opportunity than a prolonged bout of selling.
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