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Artesys Market Update

The financial markets, US and abroad, are experiencing significant volatility. We suggest there are three primary factors contributing to the volatility and contraction of stock values:

1. The US market has been long overdue for a correction.

While it’s too early to tell if this is a market correction or the beginning phase of a bear market, corrections are healthy as they serve in preventing significantly over bought market conditions i.e. market bubbles. Market contractions from bubbles can be prolonged and more severe. With the S&P 500 at 1,904, it has declined 12% from its high of 2,130 on May 21st of this year. Historically corrections happen about every 24 months and generally are in the range of 8%-12%. The last 10% correction in the US market (as measured by the S&P 500) was closer to 44 months ago – so statically, if this is a correction, it is overdue.

2. A Slowdown in economic growth in China combined with a collapse of the China’s stock market.

In an effort to promote capital investment within Chinese companies, China initiated liberal margin requirements (ability for an investor to borrow to purchase stocks). This resulted in a market bubble, followed then by a bubble burst with China’s stock market now declining 42% (as measured by the Shanghai index) from its June peak. China has begun lowering its interest rate supporting a thesis that the China’s economy is slowing down. China’s economy is not near as transparent as the US, resulting in difficulty for the markets to get a grasp of the extent of the economic slowdown. Markets do not like uncertainty and volatility ensues with uncertainty.

3. Indecisiveness by the US Federal Reserve over interest rates.

As mentioned above, markets do not like uncertainty. The indecisiveness of the Federal Reserve in the direction of interest rates is causing the markets to question if the US economy is growing, stagnating, or contracting. Given the recent selloff within US stock markets, the near term focus will be whether the US (and the world) is heading back into another recession.


These are difficult times for investing, as managers we have been through similar periods. We are monitoring the markets daily while making adjustments to positions as our systems dictate.


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