Tough October ends on a high note!
What Mattered Today
A positive end to a pretty tough month with the index down -2.17% which goes against the historical trends for October. Since 2000, October has been up 12 times, and down 4 for an average return of +1.70% - which is an important stat. Markets are all about probabilities rather than certainties and clearly the outcome with lower expectancy happened this year. The material stocks were best on ground – followed by the banks with a 0.71% gain – which is good relative to the market but poor relative to history. As we’ve often quoted this month, banks typically put on around +4% in October but importantly, they have a weak November as 3 of the big 4 trade ex-dividend.
Most pain this month was felt in those defensive names. If you’re holding a ‘low risk’ portfolio of bonds and ‘bond like equities’ then you’ve done it tough in October. These assets are highly correlated so diversification within asset classes that seem different on paper but are clearly impacted by the same market forces makes little sense to us. Just on that, the performance below highlights the risks of the changing market we’re in. At the start of the year, no one wanted to touch resources yet they’ve rallied strongly. A few months ago, the most popular ‘go to’ trade was defensive infrastructure and realestate. Trends in markets do change and if you get on the wrong side of a crowded trade that starts to come unstuck, it can hurt.
Source; Bloomberg
Clearly – from the chart above October has been a tough month with some big changes to longer term trends. The other important aspect to hit markets this month has been some large one off stock specific incidents as we touched on in our weekend report on Sunday. As we highlighted then….AMP -11.4%, Wesfarmers -8.7%, Cochlear -10.9%, Ramsay Healthcare -10.3%, Healthscope -28.2%, Sirtex -12.3% TPG Telecom -16.8%, Sydney Airports -13%, Westfield -10.3%, Transurban -10.4%, Crown -18.5%, Star Entertainment -17.4% and Ardent Leisure -26.3%. – all house hold names that have been hit very hard during one month of trade.
Moving into November, it’s typically a weak month although saying that, the level of weakness is often dependent on the level of positivity that played out in the month prior - so the below stats do lose some relevance after the weakness we’ve seen in October. Still, the big takeout is around the low percentage for a positive month – which sits at 44%. Overall, some caution is clearly warranted leading into November, and we’ve made some moves in our portfolio by increasing cash to 21%.
On the market today, we had a range of +/- 52 points, a high of 5329, a low of 5277 and a close of 5283, up 33pts or +0.64%.
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All figures contained from sources believed to be accurate. Market Matters does not make any representation of warranty as to the accuracy of the figures and disclaims any liability resulting from any inaccuracy. Prices as at 31/10/2016 5.25PM
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