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The October Blues

You must be feeling it right now. The mornings are cold and damp, the evenings are stealing the sunlight and that’s before they put the clocks back!

Stock markets are like an oversensitive friend, things are great on the up, but be very careful when they are feeling wobbly.  October is a notoriously difficult month to navigate for investors as yesterdays’ market rout showed us.

Septembers gains were stolen away on the back of a ‘perfect storm’ of data.

Take your pick from the decision to place $7.5 billion of tariffs on EU goods going into the US or the news that US Manufacturing is weakening. Or how about Inflation numbers suddenly spiking globally, or the US Jobs numbers falling?

Then enter the dreaded ‘B’ word and the fact that an alternative deal was put to the EU – pushing Sterling down again.

All of these factors contributed to the worst fall in 3 ½ years. The million dollar question, however, is ‘could this be the start of something worse?’

You know I don’t get into short term forecasting. However, my answer (perhaps in true Westminster style) is ‘yes and no!’

The fact that the world is heading into a global ‘recession’ is no great secret. It is almost the hope of many economists and fund managers alike that we will see a correction in order to get back to ‘normality’ after the central bank fuelled synthetically propped up world of the 2008 great financial crisis.

That said, I think we can (at this stage) assume that yesterday’s sell off was overdone.

In the next 6-12 months I think we will probably see the US get some kind of tariff deal with China. However, politics lies at the heart of this deal and don’t expect Mr Trump to do the deal in any fashion that won’t help him as he makes his bid to return to the White House for a second term. This deal (assuming it comes) will probably help in the short term.

However, a slowdown is imminent and I believe this will lead to a weakening of the US dollar.

This is the rallying cry for all those Emerging Markets pegged to the dollar. These markets have struggled over the past few years of US strength. However, the tables may turn in the coming year or so.

My quick takeaways from initial research today in bullet points is this:

  • So far, yesterdays’ sell offs appear to be an overreaction.
  • October is notoriously a horrible month so expect volatility.
  • The next six months or so could be positive if a trade deal strikes between the US and China – but expect it to be politically positioned and therefore to have short term affect.
  • The chances of the US slipping into a mild recession in the next 12 months or so are fairly high, however, they can cut interest rates to weaken their currency.
  • A weaker US currency may well help Emerging Markets to reboot their own flailing economies and recovery could be led from those sectors.

Of course, I could be completely wrong! My oversensitive friend may just have been having a difficult day. However, the key point is that we always diversify your portfolios. It has been a good year for our client portfolios so far and I am still confident that we can come through the October blues in good shape.

As always, we are here for you. You are not alone so just let me know if you need anything at all.

Best wishes



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