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"Take a Deep Breath"

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"I think this is a healthy return to volatility, to make sure people are properly pricing risk assets in the market. People generally tend to under-react at first, then they overreact. They realize they've overreacted, and you see a shift back. That's what we've seen this week."

To Scott Glasser, Co-CIO of ClearBridge Investments, the emphasis was on equity valuations.

"Before this correction we didn't think valuations were extreme, but we thought they were at the upper end," Mr. Glasser said. "Relative to interest rates, that meant that to get additional stock performance, it really had to come from earnings growth. But over the last several years, stock valuations have risen as performance has been much better than underlying earnings growth."

"That potentially makes stocks vulnerable: the higher valuations go, the higher the risk. Our belief is after several good years, this would be a moderate year with very modest returns. S&P profit growth will probably be between 0 and 2%. Stock returns would be low single digits. We have no change. That's absorbing as much as a 50% reduction in energy estimates."

"Markets don't go up year after year. To grow into earnings would be a much healthier way to adjust valuations than a significant correction, but it is normal to have 10% corrections periodically. We haven't had one for over three years. It actually creates opportunities, puts risk back in the system and ultimately is a healthy thing, although painful while going through it."

"A third of the Russell 2000 is actually comprised of non-earning companies, the highest level it's ever been in non-recessionary periods."

Fixed income markets were also impacted. Concern immediately focused on whether the U.S. Federal Reserve (Fed) indeed will begin the process of raising interest rates, as expected.

"The Fed clearly wants to get off zero," explained Western Asset Management Deputy CIO Michael Buchanan. "We had been in the camp that September is more likely than December. The market is telling us there's virtually no chance of a September move, right now, but I'm not sure it matters. What matters more is the trajectory of rates once they do the first hike."

"We think that's going to be very different than previous Fed hike cycles: much slower. We believe Janet Yellen when she says that the pace of rates will be gradual and prudent. Any rate rise will be accompanied with very dovish language from the Fed. Although they are removing accommodation, they're going to do everything they can to make sure the markets know they are still accommodative and watching the fundamentals. The Fed won't hurt you in this rate rise."

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