What am I thinking?

Hasn’t the year flown by so far? We are already mid way through October, well in to “The Spooky Season” and that leaves less than 10 weeks left until Christmas!

Hunting Season

Half way through October marks a special time in the seasonal investment returns calendar. These next two quarters on average bring around double the return we receive over the previous two quarters. As you know October to March last year brought a far higher return than we could have rightly expected and April to September has been below average at best. Holding more of our portfolios in cash throughout the Summer when return expectations were low has been a comfort to many clients. Yesterday was the 39th anniversary of Black Monday. The FTSE 100 fell 10.8% on the Monday followed by 12.2% on the Tuesday. I had only been in the industry since February ’87 so it was a rude awakening indeed. There was much talk of a similar market outcome yesterday, but we were spared. Perhaps the 40th anniversary next year is the one to look out for. Celebrating 40 years in this profession next February 3rd will be pretty special for me.

Political Season

Along with the opportunities that this coming period of the calendar brings, we receive another tailwind from the US Presidential cycle. This third year is on average the strongest of the four year cycle. So a couple of intersecting good investment periods on the doorstep; What’s not to like?

Budget Season

Well here in the UK we have the long dreaded awaited third Labour budget to look forward to on the 28th October. Spoiler alert it won’t be good for anyone with a modicum of wealth. It’s simple really, successive governments have spent and continue to spend too much on benefits, with no prospect of reducing the ever increasing bill. The Labour back-benchers won’t vote for benefit cuts or departmental cuts, so higher taxation it is. The problem is we have already reached a point on the Laffer curve where higher tax rates bring in lower tax revenue. Therefore the debt rises and that is why the cost of servicing the interest on that debt continues to rise. Lending to an entity that is already struggling to repay the interest on the money they have borrowed so far demands a higher interest rate. We are not alone, most western nations have the same problem. At least we are not France.

So with a top income tax rate of 45% an additional rate taxpayer keeps just £55 of each additional £100 he earns. When he spends the £55, because VAT is then charged at 20% on most items, he can only buy £46 of goods. The real rate of tax is therefore higher than 54% before other stealth taxes are taken into account like fuel duty, stamp duty, council tax etc. It’s little wonder that we are the world’s number 2 exporter of cars, planes, equipment, food, energy millionaires! Beaten only by China, but they have billions of citizens.

Next on the horizon are the US mid terms where the blue corner (confusingly they would be the red corner in the UK) hopes to take seats in the House and the Senate from the red corner (again confusingly they would be the blue corner in the UK). Just to be clear Trump and the Republicans are red and whoever and the Democrats are blue. What’s going to happen? Well the media suggests it’s a walkover for the Democrats winning more seats, but they never have put Trump higher in any poll even though he has become POTUS on two occasions. I guess the US media is largely run by Democrats, like the UK media, especially the BBC (other biased news networks are available) is largely Labour supporting. We can be certain of the uncertainty.

So just a couple of banana skins on the 28th and the 5th November and hopefully we can move forward. Investment market participants don’t like uncertainty, whatever happens in the next 2 weeks or so happens, then we can plan with what we’ve got.

Earnings Season

US companies report their earnings every 3 months. This fortnight it’s the turn of the tech boys. Meta tomorrow, Microsoft and Alphabet next Wednesday, Amazon and Intel on Thursday. Shortly after is Apple on 2nd November followed by Nvidia later in November. A lot rests on how the AI hyper-scalers are performing. A poor set of earnings and forward guidance from these big boys will affect the market. The S&P 500 has already seen a steady decline in the number of shares that are within spitting distance of all time highs, its only been tech shares that have kept the US market from dropping over the summer. A good report tomorrow from Meta (Facebook with its new AI agent Muse) would kickstart this two quarter higher return season off nicely. Fingers crossed.

Seasoning

• Past performance isn’t necessarily a guide to the future.
• Investment values can fall as well as rise.
• This blog doesn’t constitute regulated financial advice and is for UK citizens only.