US elections and the markets
Investors are fond of historical data, of market observations over a period of time, and they tirelessly seek out repeatable ‘historical’ patterns. So, when asked ‘Are some months better than others for stock markets? The answer is yes. There is no doubt that performance is not randomly distributed over the year. In reality, the ‘yes’ is more of a ‘yes but’, as the recent example in the Hong Kong market demonstrates. Although September is usually one of the worst months for stock markets in general and Hong Kong in particular, the Hong Kong market actually increased by about 20% in September this year... perhaps proving that statistics can be a false friend. One painful experience is not going to put off statisticians, as the US elections approach. The very short-term effects are generally in line with expectations, but in the medium and longer term, there are far too many factors at play to construct an allocation based on a political programme. Even with a crystal ball showing us the results of November 5th elections, our portfolio would probably remain unchanged. On that note, it is more useful to focus on fundamentals and the intrinsic value of underlying assets. From this point of view, a little caution towards the US stock market at the end of the year should not do any harm. We have often mentioned the high valuation of the Tech sector and the “Magnificent 7”, as well as the US exceptionalism, but when Walmart is valued at 35 times its earnings, it is worth thinking twice before putting new money to work. We are discussing these topics in this newsletter.
