July proved to be a brutal month for equity markets and the first 10 days of August have been equally poor.

The accompanying table sets out returns for the ISEQ and the key overseas stock market indices that are of relevance to Irish investors. The data show returns to August 10th for one week, the quarter-to-date (1st July to August 10th) and the year-to-date returns.

The deterioration in equity prices over the past four to six weeks is evident from these figures. It is noteworthy that all of these indices declined over the period under review, with very substantial falls being experienced by the ISEQ, Eurotop300 and Nasdaq indices.

The picture regarding returns over the year-to-date is equally grim. Given the woes afflicting the technology sector it is not surprising to see that the Nasdaq has fallen furthest so far this year, with a decline of more than 20 per cent. However, Europe is not far behind, with the FTSE Eurotop300 index now down more than 16 per cent since the beginning of the year.

Presumably, this poor European performance reflects the fact that the European economy has not been able to remain immune from the US economic slowdown.

The Irish equity market stands out as the only market that is showing a positive return since the beginning of the year amongst the markets shown in the table.

Even if one looked at a full list of global stock market indices, the Republic would be among a tiny band of stock markets enjoying a positive year-to-date return.

While this must be providing some comfort to investors in the Irish market, the action within the market in recent weeks should be giving cause for concern.

It is clear from the return figures in the table that the Irish market over the more recent period has moved to bottom of the performance rankings. In the quarter-to-date period only the Nasdaq (-9.5 per cent) under performed the ISEQ (-9.4 per cent) by the smallest of margins.

This sharp deterioration in the ISEQ fortunes does seem in part to be due to the general weakness across Europe, evidenced by the 8 per cent fall in the broad-based FTSE Eurotop300 so far this quarter. This has reflected mounting evidence that European economic growth could slow down sharply in coming months.

However, the recent poor performance of the ISEQ does also seem to reflect a perceptible shift in sentiment towards the short-term prospects for the Irish economy. It is now widely accepted that the period of booming 10 per cent per annum economic growth is now behind us.

Up to recently, there seemed to be a cosy consensus that Irish economic growth would settle into a more sustainable rate of 5-7 per cent per annum. However, there is now a growing minority view that, over the next six to nine months, domestic economic growth could slow quite sharply.

Support for this viewpoint comes from the sudden slowing down in the pace of growth in tax receipts and the sharp pick-up in the pace of retrenchment in the technology sector.

In addition, recent public statements from policy-makers in the large overseas economies reflect an increasing concern that the risks of a global recession have risen considerably in recent months.

Companies that are heavily dependent on the Irish economy include all of the financial stocks and it is noteworthy that much of the recent weakness in the Irish market has been focused on these companies.

Given the forward momentum that currently exists in the Irish economy, the odds probably still point to a relatively soft economic landing.

Nevertheless, the fact that the economy is now certain to slow to a more "normal" pace of economic means that the period of out-performance from the Irish equity market is over.

If domestic economic conditions were to deteriorate more significantly, then the ISEQ could well under-perform overseas markets in coming months.