Hello, this is Jeremy Richardson from the RBC Global Equity team here with another update. Now, September is often a month of change as seasons give way, and it's been a month of change in capital markets too.

The first change is a positive change in that after a long drought, had a number of companies come to market with initial public offerings, IPOs. Although the performance of these IPOs has been somewhat mixed, just the fact that they've been coming to market I think is a positive and encouraging development because it suggests that in the minds of companies and investors, there's still that willingness to look forward into the future.

The second change is less encouraging, and that is a change in the market's attitudes - the motivations of the US federal Reserve. Let me explain. Earlier in the summer, the phrase that investors were focusing on was ‘data dependency’. The Fed had been saying that it would be ‘data dependent’, meaning that if the economic circumstances changed, it would make the slight adjustments necessary to ensure that the economy continued on its way. And that raised confidence, I think, for many investors that there would be a soft landing, that essentially the US economy would be able to avoid a recession. That consensus view is now being challenged by new commentary from the US Federal Reserve, which feels more hawkish in tone. And in particular, this phrase is now ringing in investors that the Fed intends to have ‘interest rates higher for longer’.

In effect, it's signalling that the Fed is perhaps more concerned about the outlook for inflation than perhaps investors were initially prepared to believe and is having to repeat a more hawkish message to in order to get that message across. In effect, its undermining the market's confidence in that soft landing, and it's raising fears that there might be a bit more of a bumpier landing, maybe a recession even at some point in the not too distant future. And that's somewhat unsettling for capital markets generally, including equity markets.

The third thing that has changed is real interest rates, which is essentially the difference between nominal inflation and interest rates in the market. And if we think about how those have shifted - they've come from about 1.85% to about two and a quarter percent just over this over the space of September, which is quite a significant move. But it's not being driven by changing inflation expectations, those remain fairly steady over ten years at about 2.35 is where the market is at the moment. So, this higher increased risk premium that is being demanded by investors reflects some new concerns, new issues that the market is signalling its concerned about.

And we can guess about what those may be. You think about things like, for example, the changing energy situation. We can think about the prospects of the US presidential election next year. We can think about, you know, just the mechanics of the US finding it ever more challenging to roll over existing piles of government debt. All of these things may be contributing factors as to why real interest rates would be increasing, but from an investor's point of view, it does signify that the market continues frustratingly to be somewhat short term in nature, and that is to be regretted in many respects because it means that the fundamentals of businesses are often overlooked in share prices.

To some extent, we're seeing that at the moment in terms of the where in the market we're seeing a relative performance. Now, if you've been following along to earlier updates, you heard me perhaps talk about how narrow market performance has been, particularly at the early part of the year when it was driven by a small group of large US technology companies, and other companies had been somewhat left behind.

Those relationships seem to have reappeared now, and we've seen some weakness in the most recent period with those perhaps smaller, more diverse companies and relative strength in that same group of larger technology related companies. That is perhaps less of an encouraging sign. I think if we saw that performance in the market begin to broaden out, it would be a healthier sign of overall market development. But it does suggest that there are continuing to be valuation opportunities within the market, notwithstanding these elevated risks. And for investors are long term minded that actually can present some really interesting long-term opportunities.

I hope that’s been of interest, and I look forward to catching up with you again soon.