The market has retreated about 4.5% from the highs during the month of August. We have previously noted that we expected some normal consolidation and that we thought any pullback would be short lived and shallow. We continue to view any corrective action as an opportunity rather than a reason to be broadly concerned. The primary driver of recent weakness has been the anticipation of when the Fed may begin to taper the monthly bond buying stimulus. Our expectation is that economic conditions are not yet good enough to be sustained if there was a major shift in economic policy. Therefore, we believe any change will be quite moderate relative to expectations and the market will respond positively.
It is interesting to note already that the bond market has reacted more negatively then has the equity market. Though there remains a high level of interest rate risk in the bond market, we expect to see interest rates come back down a bit with our view that a change in stimulus will be viewed as moderate.
Overall, equity market fundamentals are sound and we remain bullish intermediate and longer term.