Investing
by Chris Bailey, European Strategist, Raymond James Investment Services Ltd.
“In cognitively demanding fields, there are no naturals. Nobody walks into an operating room straight out of a surgical rotation and does world-class neurosurgery” – Malcolm Gladwell
October historically has always been a big month for investors. In my formative years back in the 1980s during one October, there was a major market crash (and weirdly simultaneously in the U.K. an extreme weather event in southern England), meanwhile those interested in older historical events will recall the events of October 1929 and the infamous capital market events back then. A lot has happened in the month of October that has just passed and whilst it is unlikely the history books will remember the tenth month of 2019 assertively, for investors thinking about prospects over the next year, it may have been critical.
We have to start with the world trade discussions between the United States and China. The meeting in Washington D.C. was far from dramatic but did at least postpone some of the mooted tariff increases which had caused such global market volatility in the first half of August. At the risk of repeating words that I have written a number of times already this year, it seems to me that the rationale for the high profile Presidents of both countries to back a deal is very clear. After all, an overt trade war is one of the quickest ways to hurt an economy, stymie reform efforts (China) or win an election (the United States).
So a little bit of progress on this important issue – which should be supplemented by at least one further meeting before the end of the year – set the tone for a good October where it was easier to say which global equity markets did not make progress, given the magnitude that did make gains. You will note I said ‘equity markets’ because by far the most interesting insight from October’s capital markets were that equities notably outperformed fixed income markets. And supplementing this outperformance was that the leadership of most global equity markets changed too.
Shorter-term performance trends have been brewing up a little since mid-August and they have been favouring on average sectors and shares that have been a little bit more cyclical and hence previously out-of-favour. A lowering of world trade angst naturally helps such thoughts, even if the mood music around economic growth forecast reductions by well-known supranational institutions and yet another interest rate cut by the Federal Reserve is not so good. And this is the most fascinating aspect of October’s performance: portfolio managers around the world are now having to think whether a broader mixture of shares beyond areas such as technology and bond proxy areas is a wise diversification or not.
And actually it is beyond sectors and shares. A backdrop of trade progress is unsurprisingly better for countries and regions that are more exposed to the global economy. On this basis, step forward the pan-European markets and Asia including – naturally – China. Also noteworthy during October was the rollover in the value of the U.S. Dollar. If you are looking for a catalyst that helps further entrench rotation towards particular sectors and markets… then keep watching the value of the world’s largest reserve currency.
Naturally there are many influences on a currency, not just the trade backdrop and even economic performance but other factors such as politics too. Now, which currency had its best monthly performance against the U.S. Dollar for over a decade during October? Well that would be the Pound, the currency of a nation where a December general election has been announced for the first time since 1923.
If rotation could be a beautiful word for global investors, then politics has been a complex one for investors into the U.K. markets in recent years. The end of the year may be approaching but there are a few twists and turns left for investors in 2019 yet.
DISCLAIMER: The information contained in this article is for general consideration only and any opinion or forecast reflects the judgment of the Research Department of Raymond James & Associates, Inc. as at the date of issue and is subject to change without notice. Past performance is not a reliable indicator of future results.
You should not take, or refrain from taking, action based on its content and no part of this article should be relied upon or construed as any form of advice or personal recommendation. The research and analysis in this article have been procured, and may have been acted upon, by Raymond James and connected companies for their own purposes, and the results are being made available to you on this understanding.
Neither Raymond James nor any connected company accepts responsibility for any direct or indirect or consequential loss suffered by you or any other person as a result of your acting, or deciding not to act, in reliance upon such research and analysis. If you are unsure or need clarity upon any of the information covered in this article, please contact your wealth manager.
Black MondayOn 19 October 1987, the stock markets experienced a dramatic plunge that prompted many firms to shut down their trading desks and turn off their phones to minimize internal losses. Raymond James refused to do the same. Our desks stayed open to help meet clients’ needs, resulting in our first and only unprofitable quarter since the firm went public in 1983. |
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Who was Raymond James?The Raymond in our name is actually from Edward Raymond, owner of a 15-employee mutual fund sales group, Raymond and Associates, along Florida’s west coast. He sold his company to Bob James on 15 July 1964, on condition that the surviving firm be called Raymond, James & Associates. Three days after the sale, Ed Raymond was involved in a near-fatal automobile accident and never joined the firm. Nonetheless, even after Raymond had passed away, Bob James insisted that his name remain on the door – ahead of James’ own. That was a promise he made to Ed Raymond three days before the accident, and Bob James was a man who kept his promises. |
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Bear Market of 1974The severe bear market of 1974 threatened the existence of Raymond James, which was bleeding capital by the day. Tom James, his father and other leaders took extreme measures to keep the firm afloat, slashing costs, foregoing paychecks and even attempting to sell the firm for just enough capital to protect client assets and retain as many associates as possible. The story could have ended very differently if not for a sharp upturn and continued rebound in the stock markets late in the year. |
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Taking Raymond James PublicWhen consideration was being given to taking Raymond James public, Tom James penned a letter to shareholders (largely employees at the time). ” … the public offering should be considered as a statement of our independence. While this is a psychological rather than an economic rationale, it is nonetheless very important. We have asserted for some time that we are not interested in becoming a small part of a very large corporation. That assertion results mainly from the inclinations of management rather than the economic benefits associated with either alternative. The public stock offering affords us the opportunity to enjoy a little bit of the best of both worlds. While shareholders will be given liquidity at fair market value, we will still have the ability to control our own destiny.” After 40+ years of Tom’s leadership, upon becoming CEO, Paul Reilly was often questioned about whether the company might ultimately surrender its cherished independence and be acquired by some larger entity. His response: “Not while I’m around.” It’s a theme that continues today. |
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