"The majority of the stupid is invincible and guaranteed for all time. The terror of their tyranny, however, is alleviated by their lack of consistency" - Albert Einstein
Global equity markets were generally weaker in October as the US election loomed large on the horizon and Covid-19 cases accelerated to new record levels.
"Doubt is not a pleasant condition, but certainty is absurd" - Voltaire
September once again lived up to its billing as a poor month for equities with most global markets ending in the red. NZ, Australia and the US fell - 1.6%, -3.4% and -3.8% respectively. Looking back over the third quarter equities generally performed strongly.
"If something cannot go on forever, it will stop" - Stein's Law
There has never been a time when this law of economist Herbert Steain was more applicable. We have technology stocks rising to mind blowing valuations, interest rates falling to new lows with talk in NZ of negative rates, debt rising to unimaged levels
May saw a continuation of the very strong rebound in equity markets which began at the back end of March. The recovery has been as record breaking as the decline was, when markets capitulated and investors off-loaded anything they could to get into cash, in particular, USD's.
The pandemic which we are all tired of hearing about, analysing and prognosticating over delivered a new challenge to investors. Never before have we been faced with the task of valuing businesses which have lost all of their revenue and are surrounded by uncertainty about for how long, and how much will resume if things return to normal, if they do??
The sharp market sell-off has spelt the end of a decade long bull market in equities and we are almost certainly close to the end of a 40-year bull market in bonds.
The Covid-19 virus is a left field risk that has served as the catalyst to ignite a spectacular decline in the global equity market.
What a difference a year makes. 12 months ago we were reeling from one of the worst quarters in living memory with virtually every asset class taking a battering.
After the sharp falls in equities during the fourth quarter of 2018, the first four months of 2019 brought a strong rebound.
November was yet another strong month for local equity markets with the Australian All Ords up 3.1% and the NZX 50 up 4.9% taking year-to-date returns to 26.4% and 28.4% respectively. This puts them on track for their best return since the GFC, something I'm sure no one was predicting back in January.
The "October Effect" - or the "Halloween Effect" if you're American - received renewed impetus this month with global equity markets taking a battering.
The theory goes that stock markets tend to fall in October and is probably due to the October stock market crashes of 1929 and 1987.
We could join the chorus of opinion about what is happening in global equity and bond markets but we really have no unique insights to add. In the quarter, and for the past few years, we have read numerous arguments for why we are approaching the end of this current rise in share.
After hitting new highs at the beginning of the month the NZ stock market eased slightly to end the month down a modest -0.2%. Meanwhile listed property paused for breath having gained 9.1% in the last five months.
A question we are being asked about current portfolios is why we have so much in equities?
This is a fair question for retirees who rely on income from their portfolio and have a low tolerance for capital loss. It is also a fair question for someone seeking growth but with an emphasis on capital preservation.
The music continued to play in equity markets with the NZX50 up +1.6% in August, its eighth monthly increase in a row and its 2nd longest winning streak in the last 20 years. This was only trumped by the US where the S&P 500 recorded a record 10th positive month in a row.
Global equity markets rose +2.3% in May, led by the UK (+4.4%), Emerging Markets (+3.0%) and Japan (+2.4%), while closer to home markets were more subdued with the local NZX50 rising +0.5% and Australia's All Ordinaries falling -2.6%, largely on the back of weakness in the financial sector (-10% see below).
The February reporting season passed relatively uneventfully on the local market with analysts upgrading their 2017 earnings forecasts for 62% of the companies reporting versus 38% that received downgrades, although the optimism was dampened by a slight fall in expected earnings growth to 5.8%.
Global equities continued on with the pre-Christmas rally in January, with the tech heavy Nasdaq index and Emerging Markets particularly strong, gaining 4.3% and 5.5% respectively. The S&P500 was up 1.8% but Europe and the UK were marginally weaker, down 0.6%, similar to the All Ords Accumulation Index in Australia, which fell -0.8%, mostly due to weakness in the banks.