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    Investing in Sustainable Growth - Quality Will Prevail

    As we sail into the final leg of a blustery year for equity markets, the global economic recovery has remained in place, albeit with signs that the breakneck pace at which it set off is abating.

    Michael J Solecki, CFA
    CIO, Fundamental Growth and Core Equity

    The resurgent recovery appears to have lost some of the momentum spurred by the reopening of economies amid the spreading delta variant and worrying data emerging from China. The global equity rally forged its way on the path of least resistance through August, defying a growing list of worries — apart from the aforementioned COVID-19 variant, these worries included high inflation, supply chain disruption, imminent central bank tapering, China market volatility, and a scaled back fiscal package in the United States. Signs that these issues were beginning to catch up on investor sentiment became evident in September, when share prices took a tumble from their highs. Growth stocks have largely led markets higher, but as vaccinations have accelerated and the number of virus cases appeared to peak, the reopening trade reasserted itself. Among the positives, corporate earnings have continued to increase and the market has underestimated this rise. This has allowed the consensus forward valuations to fall significantly this year despite the advance of markets — this is the “benign derating” we referenced last quarter. Despite this, valuations are still on the high side by historical standards. Looking forward, our primary considerations going into year-end are interest rates and inflation, COVID, the potential for new taxes weighed against potential infrastructure spend in the US, and a continued progression of earnings growth.

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