- Valuation levels are not a reason to stay away from equities.
- The most encouraging factor for equities today may be the impressive level of synchronized global economic improvement.
- For emerging markets, a number of risks remain, which the market does not appear to be pricing into stocks.
In the face of uncertainties that might normally rattle stock markets, equities continued to deliver impressive performance in the third quarter. In the United States, despite a lack of pro-growth legislation, lofty valuations, and market leadership concentrated in a small cohort of growth stocks, U.S. equity indexes moved higher, setting multiple records. Even more unexpected was the performance of markets outside the United States, which were unfazed by distractions such as escalating geopolitical tensions, a contentious European electoral cycle, continued uncertainty over the implications of Brexit, and the risk of a more protectionist U.S. trade policy. International equities delivered solid gains, with the biggest rally coming from emerging markets stocks. The MSCI Emerging Markets Index in September reached its highest level in six years.