Good morning,

 

Last week saw the start of Q3 earnings season, traditionally led by the large US banks. JP Morgan and Wells Fargo both reported a fall in net income, down 2% and 11% respectively. However, by the end of Friday trading JP Morgan’s share price was up 4.5% and Wells Fargo was up 5%. If we rewind to the end of August, Nvidia saw a net income of $30bn, a 100% rise from a year previous, only to see its share price meet with a 6% fall in after-hours trading. The key difference in each case was the preceding market expectations.  

 

We use the above companies as examples, purely as household names rather than it being a direct commentary on the business. But it does draw out a pertinent point about the behaviour of stock markets. It is not only the ‘event’ which is important for asset prices, but the markets expectations and subsequent reaction to the ‘event’.  

 

For example, if you were told on the January 1st, 2016, that by the end of the year, the UK would vote to leave the EU and Donald Trump would be in the White House, how would you have positioned your portfolio? We saw negative returns for cash, positive returns for government bonds, and double digit returns for global equities. Not exactly what you may have thought. Being in tune with market movements and reactions, whilst maintaining conviction and a consistent process are key tenets of successful long-term investing.  

 

As always, if you wish to discuss anything in this newsletter in further detail, please do get in touch.