Last week investors witnessed extraordinary volatility in the global equity markets. In the past 16 days the S&P 500 Index declined 18% before rebounding almost 5% on Tuesday, after the Federal Reserve confirmed short term rates would not be raised until mid-2013. Another sudden fall today, the speed and strength of market movements have alarmed investors and traders alike. Just when one thinks there is stability market volatility resumes.
As these more turbulent times unfold we are asking ourselves if the economic fundamentals have changed. We believe the short answer is “no”. The plans of McDonalds to open new stores in China did not evaporate because of volatility, the need for Caterpillar earth moving equipment to build roads in Brazil did not suddenly go away as the market sold off, and the hunger in the bellies of the third world populations for the products of companies like Kraft, Heinz and General Mill’s did not diminish because of volatility. The fundamentals of strong companies have not deteriorated in the last few weeks!