Our Current View of the Markets
Most global equity markets save for China, Hong Kong, and Taiwan rebounded sharply in October off the lows set last month in one of the worst Septembers in recent history. The major indices were all up for the month with the Dow Jones Industrial leading the pack in the US with its largest monthly gain since 1976, the S&P 500 followed trend, whilst the tech-heavy Nasdaq index lagged in comparison. That said, all three major US indices remain in the red by double digits year-to-date as of 31 October. The only countries in positive territory this year so far are Brazil, Chile, Venezuela, Ecuador, and India.
Moving on to November, despite the recent rally in stocks on the back of encouraging US inflation figures and positive news from China, whilst encouraging it none-the-less seems the conditions for a sustained rebound are still not yet in place. In the past, market surges of this magnitude have occurred during Bear Markets 77% of the time. Indeed, big daily rallies tend to occur frequently during Bear Markets, which does rather pour cold water on the recent uptick.
But investment decisions should not be based on one indicator alone. The fact that most asset classes have tumbled in value this year means many investors are afraid. It takes quite a leap of faith to remain invested, calm, and unemotional, and a significant leap to invest new cash at this point. It’s probably worth revisiting the wise words shared by Warren Buffett when he wrote to Berkshire Hathaway shareholders in 1986: “Be fearful when others are greedy and be greedy only when others are fearful”. According to Buffett “The best chance to deploy capital is when things are going down. Whether we are talking about socks or stocks, I like buying quality merchandise when it is marked down”. Wise words indeed. There is certainly justification to be greedy now, investing cash over the long-term.
However, is the worst yet to come given the possibility of recession (definition: two consecutive quarters of negative Gross Domestic Product “GDP”)? In the absence of a crystal ball, it’s impossible to say of course, but passing up on something that’s attractive today in the hope of finding something better tomorrow is a risk. That’s why during periods of relative uncertainty we prefer to invest gradually, accepting that we may not have identified the elusive bottom of the market, but knowing we avoided buying at the top. A sensible average price is a price worth paying.
If your existing portfolio is valued at US$1M or more, or you have that amount of cash to invest, Contact Us now to arrange a Discovery Meeting and find out why most clients of H Capital have been with us for many years.