Fears of this recession becoming depression have been allayed

Equity markets have clearly benefited from a dramatic shift in investor sentiment since early March - when the prevailing fear was that what had been a painful recession could escalate into an even more painful and longer-lasting depression.

US markets have rallied strongly since then, with the S&P 500 up 45% to the end of July, and the Russell 2500 index of small and mid caps up by an even more impressive 60%. Still, given weakness endured in the first part of the year, the markets year to date are at rather more sedate levels of 6% and 13% respectively. From a valuation perspective, we have gone from a point of extremely attractive valuations in February to a point of less compelling valuations now. We do not think investors should see this as a sign to sell, but instead they should take the opportunity to ensure their por...