Five big things that have changed

Markets have experienced increased volatility since early July, particularly affecting growth stocks and international equities. Recent indicators, such as a stronger-than-expected services ISM report, suggest that a severe economic slowdown is not imminent.

The Bank of Japan governor's reassurances and Fed Chair Jerome Powell's acknowledgment of a potential rate cut have also contributed to stabilization. Despite a 6% decline from market highs, caution remains warranted as significant changes in the investment landscape emerge, particularly with the ending of the yen carry trade and a dis-inversion of the yield curve, which may shift the advantages previously held by large-cap growth stocks.

Additionally, the earnings growth gap for large-cap growth stocks is expected to shrink, while rising policy uncertainty due to the upcoming election and a softening labor market may further impact investor sentiment. Overall, while the recent market actions could signal fundamental shifts, a continued cautious approach is advised, focusing on small caps, value stocks, and emerging markets.