Despite recent equity volatility, reasons to hold steady

The high level of volatility we are currently experiencing within equity markets globally seems to be caused by a confluence of events that has led investors to higher-than-usual anxiety levels. Military conflicts, political unrest, and potential economic instability around the world — together with the spread of the Ebola virus — have invoked the types of broad-based fears that have rattled global equity markets in recent sessions.

While there are many reasons to be cautious about the current tumult, there are many reasons to be optimistic about the future. A closer look at company earnings, for instance, reveals continued growth in U.S. corporate profits, with expectations of higher profits in the quarters to come. Also of note is the price of crude oil, which has reached its lowest level in four years, essentially creating a tax break for the U.S. consumer while also boding well for corporate profits.

Furthermore, upon closer inspection of equity market returns, it is important to keep in mind that the small-cap Russell 2000® Index, which often leads other major indices, has lately outperformed as it potentially leads the way out of today’s corrective phase. (For more evidence of small-caps as leading indicators, consider that the Russell 2000 Index entered the correction a few weeks prior to other widely followed benchmarks such as the S&P 500® Index and the Nasdaq Composite Index.)

Ultimately, we believe that now is not the time to avoid equities, as many market strategists do not foresee an authentic bear market or a recession in the near future*.

*A bear market is defined as a decline of 20% from the previous high point, while a recession is defined as two consecutive quarters of negative economic growth.

Investing involves risk, including the possible loss of principal.

The views expressed represent the Manager's assessment of the market environment as of October 2014, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice and may not reflect the Manager's views.

The Nasdaq Composite Index is a market- capitalization –weighted index representing more than 3,000 common equities listed on the Nasdaq stock exchange.

The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index, representing approximately 10% of the total market capitalization of that index.

The S&P 500 Index measures the performance of 500 mostly large-cap stocks weighted by market value, and is often used to represent performance of the U.S. stock market.

Index performance returns do not reflect any management fees, transaction costs or expenses. Indices are unmanaged and one cannot invest directly in an index.

For institutional client use only. Not for use with the public.

Past performance does not guarantee future results.

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