• Market conditions have become more complicated in recent months, and sentiment has been deteriorating.

• While we recognize the risks, we think markets are oversold and that fundamentals remain strong.

• The environment over the next year may not be great for equities, but we do not think this bull market is over yet.

Stocks once again experienced a strong selloff last week as investor concerns over a number of issues grew. It seems that strong earnings results have not offset fears of a future slowdown in earnings growth, the stronger dollar, rising input costs, a weak housing market, uncertain trade policy, slowing growth in China and rising interest rates. The S&P 500 Index lost 3.9 percent for the week, and notched a peak-to-trough 10 percent correction.1 We recognize the downside risks and expect volatility to continue, but also think sentiment is worse than reality.

Ten Themes In The Midst Of Volatility

1) U.S. economic growth remains solid. Third quarter gross domestic product advanced 3.5 percent, putting the year-over-year gain at 3.0 percent.2 Consumer spending was strong, although capital expenditures showed some weakness.

2) Manufacturing levels may come under pressure. The closely watched Richmond Fed Manufacturing Index fell to a six-month low in October.3 Although other regional reports showed more strength, the decline could be a cause for concern.3

3) The outlook for global growth may have weakened recently, but we see no near-term signs of significant financial pressures. We do not see undue pressure in the credit markets. High yield credit spreads have widened slightly, but still remain relatively tight.1 And while stock prices have declined sharply, valuations have become more attractive.1

4) Global fiscal policy is likely to be simulative next year. Countries around the world are worried about keeping pace with U.S. growth. We expect a number of countries to adopt stimulative measures as a result, and think corporate tax cuts could be cut across jurisdictions.

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