We hope you enjoyed the nice August weather and were not distracted by what was, in hindsight, a newsworthy month for markets. Slowing economic growth figures were accompanied by a series of tweets by President Trump signifying a new, more intense phase of the US/China trade war. Although equity markets didn’t retreat in August as much as in May, the bond market saw one of the biggest moves in years as investors sought a safe haven in government securities and interest rates declined. Shares of economically-sensitive companies sold off, while companies deemed relatively defensive, such as utilities and consumer staples, held in. Gold stocks also performed well. Because many market participants are typically away during the month, August is notorious for its lack of liquidity, which can accentuate market moves. We believe some of this was at play during the month. Importantly, as we write this, many of these trends have reversed themselves in September.
The financial press is full of negative stories at the present time and talk of recession is common. For our part, we still maintain that no one can predict when a recession will occur – and certainly not financial journalists. When the next recession does strike, it likely won’t be as severe as the one that accompanied the Global Financial Crisis of 2008. As such, we continue to take a cautious yet constructive approach. The main reason is that currently, the market is as bifurcated as it has ever been. Some areas of the market are attractive while other areas are as expensive as we have seen in a long time. We are interested in the former and avoiding the latter.
We thought you might enjoy the following article: Opinion: Why you should keep believing in Warren Buffett even though the stock market is crushing Berkshire Hathaway.
It illustrates the current environment for long term investors. Similar to the late 1990s, the market has been driven recently by growth and momentum investing while successful value investors, such as Warren Buffett (and Prem Watsa here in Canada) seem to be missing out. In the late 90s, we saw plenty of financial pundits disparaging Buffett’s approach to investing. The article linked is a response to a new round of criticism aimed at Buffett and by extension, value investors.
Although still early, value stocks have started to perk up of late and September has started off on a positive note with respect to performance and the outlook for the global economy.
Hopefully, you are encouraged by this article, as it is just another reminder that when it comes to markets, memories are short and people are often focused more on the rearview mirror than the road ahead.