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"Take a Deep Breath"

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"Take a Deep Breath"

One investment advisor suggests calm.

Investors turning on their TVs after US equity markets opened on August 24 were greeted with news that was anything but good: a market correction, the first in years. The S&P 500 closed down on August 24th close to 11% since its July 20th high. Just four stocks drove 10% of that drop, with 20% coming from 11 names. The 10-year treasury yield reached a low of 1.9015%, an intra-day level not seen since April 26, 2015.

Asset management firm Legg Mason gathered some of the senior investment professionals at its affiliates to sound out their views on what happened. What is driving the surge in market volatility: sentiment, valuations or something else? How does this market move fit from a historical vantage point? What signs might suggest markets are in oversold territory? And where do the investment professionals see opportunities?

"I think this is a healthy return to volatility."

"It is important to have perspective," advised James Norman, President of QS Investors. "We're suggesting people take a deep breath, relax and think strategically about what they should do."

Mr. Norman focused on the market's higher volatility, which caught some investors off guard.

"Though the volatility feels horrendous, if you look back, we were in a period of low volatility. Over the last 10 years, [the VIX] has been at the 10-13 range. That's unusually low. Historically, on average it's 20 or higher. People got used to it and under-reacted to the risks in the market."

"These rubber bands around the world in terms of asset prices, having gone up quite a bit, means they're more vulnerable," Mr. Norman said. "Investors are afraid they've under-reacted to these things – that maybe some of these rubber bands are going to snap, and they're going to get hurt."

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