12.10.21

October 2021 Investment Summary

For our October 2021 Investment Summary, we take a closer look at the latest news and market trends we are seeing take place this month.

“Buying the dip” remains the correct strategy as markets rebounded sharply from the September selloff. The S&P 500 rose 7%, while the NASDAQ was up nearly 8%! There was no single reason for the rally. Rather it is the powerful and broad set of conditions that have been helping growth and boosting earnings and stock prices all year. Simply economic reopening combined with exceptionally accommodative monetary policy with some fiscal stimulus as well.

Despite flare-ups of the Delta variant of the Covid-19 virus, the reopening of most of the service economy around the world continues. While business travel hasn’t returned to its pre-Covid levels, leisure travel is picking up. Retail sales remain strong (albeit declining from their recent peaks), they are naturally shifting from goods to more services as consumers look to get out and about. Unemployment rates continue to decline as people return to work and wage growth, especially for the lowest income segment of the workforce, is rising at its fastest pace in years. Corporate earnings remain strong despite a few high-profile misses (Amazon and Apple) and warnings about the effect of supply chain issues and other cost pressures. So far there is not any effort to try and reign in this global expansion.

It is important to remember that the market sell-off of 2020 and the subsequent rebound were all driven by the pandemic and then the resultant government policy responses: namely lockdown and the concurrent shutdown of the service economy accompanied by enormous fiscal support and extremely accommodative monetary policy, and then the campaign to vaccinate the population and the resultant reopening of the service economy.

As the world economy returns to normal, the enormous fiscal support and extreme monetary accommodation will no longer be needed. The markets are already anticipating and trying to price these inevitable changes. This transition will not be smooth. No policy makers have faced anything like this before. Closing and then re-opening the world economy over 18 months has never happened before. Given this, gaging how quickly to remove the fiscal and monetary stimulus with the least disruption is impossible. Financial markets will overshoot, central bankers will make comments they regret and set goals they cannot meet. Just this past month we have seen yields on the Australian 2-year government bond jump over 60 basis points in a few days as the Reserve Bank of Australia proved unable to continue to peg the yield at 10 basis points. Yields in most other developed markets have drifted higher this year despite no change in official rates.

The Federal Reserve have just announced their widely expected plan to reduce their pace of asset purchases by $15 billion a month, so that by end of June next year the asset purchase programme will have ended. But in their own words “Our decision today to begin tapering our asset purchases does not imply any direct signal regarding our interest rate policy. We continue to articulate a different and more stringent test for the economic conditions that would need to be met before raising the federal funds rate.”

So, when will they start raising rates?

We don’t know and neither do they.

Once the labour market has healed further or perhaps when inflation has stayed too high for too long? How high is too high and how long is too long?

There is no clear answer to those questions. This challenge is faced by the other major central banks as well. The Bank of England just held off on hiking rates despite many comments suggesting that they would and markets generally expecting it. Divining the moves of central banks will prove more challenging for the markets and market participants. No doubt you have read about recent losses incurred by some big hedge funds speculating on the shapes of yield curves. It is difficult to predict what central banks will do when they don’t even know themselves.

We believe that the central banks are generally correct that much of the rise in inflation is temporary and a result of fall out from the pandemic in the way of shortages and supply chain disruptions that should dissipate next year. So, at present there is no need for central banks to urgently raise rates and throttle this post pandemic recovery in the name of fighting inflation. However, they also realise zero interest rates no longer make sense. Interest rate hikes are coming but the pace will be very slow and measured. Markets generally are not slow and measured. We stick to our view that markets will be more volatile than they have been over the first three quarters of this year.

We maintain our view the equity markets still offer the best opportunities again with emphasis on the Europe, the UK and Japan. We also suggest leaning toward companies that can control their costs and have pricing power.

Read more from our Chief Investment Officer Jeff Brummette in our September 2021 Investment Summary to round off the year of 2022. Stay tuned for more insights from Oakglen on the hot topics and latest trends in the financial markets. You can also sign up to our mailing list for more regular communications using the section below.

Jeff Brummette
Chief Investment Officer

Disclaimer

This document is distributed by Oakglen Wealth Limited and / or Oakglen Wealth (Jersey) Limited (hereafter “Oakglen”) to you for your information and discussion only. Unless otherwise stated nothing in this document constitutes investment, legal, accounting, real estate, conveyancing, surveying or tax advice, or a representation that any investment is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. It is not a solicitation or an offer to buy or sell any security or other financial instrument. Any information including facts, opinions or quotations, may be condensed or summarised and is expressed as of the date of writing. The information may change without notice and Oakglen is under no obligation to ensure that such updates are brought to your attention. The price and value of investments and any income that might accrue could fall or rise or fluctuate. The price of shares and income from them may fall as well as rise and is not guaranteed. You may not get back the amount of your original investment. A change in the economic environment, possible changes in the law and other events may cause future performance to deviate from that expressed or implied in this document. Please note that past performance, simulations and forecasts are not a reliable guide to future returns. If an investment is denominated in a currency other than your base currency, changes in the rate of exchange may have an adverse effect on value, price or income. Investing in Packaged Retail and Insurance-based Investment Products (PRIIPs) carries a high level of risk and may not be suitable for all investors.

Any information provided by a client and used to produce this document will have been checked by Oakglen for plausibility only and the client notified accordingly of any obvious anomalies. This document and any related recommendations or strategies may not be suitable for you; you should ensure that you fully understand the potential risks and rewards and independently determine that it is suitable for you given your objectives, experience, financial resources and any other relevant circumstances. You should consult with such adviser(s) as you consider necessary to assist you in making these determinations. The opportunities and risks associated with each investment product can be found in the relevant underlying securities prospectus and any other supplementary documents. All documents will be made available at any time upon request.

Oakglen does not advise on the tax consequences of investments, and you are advised to contact a tax adviser should you have any questions in this regard. The levels and basis of taxation are dependent on individual circumstances and are subject to change. This document may relate to investments or services of an entity/person outside the United Kingdom, or to other matters which are not regulated by the Financial Conduct Authority, or in respect of which the protections of the Financial Services Compensation Scheme. Further details as to where this may be the case are available on request in respect of this document. Additionally, this document may relate to investments or services of an entity/person outside Jersey, or to other matters which are not regulated by the Jersey Financial Services Commission, or in respect of which the protections of the Jersey Financial Services Commission for retail clients. Further details as to where this may be the case are available on request in respect of this document.

This document has been prepared from sources Oakglen believes to be reliable, but we do not guarantee its accuracy or completeness and do not accept liability for any loss arising from its use. Oakglen reserves the right to remedy any errors that may be present in this document. Oakglen, its affiliates and / or their employees may have a position or holding, or other material interest or effect transactions in any securities mentioned or options thereon, or other investments related thereto and from time to time may add to or dispose of such investments.

This document is intended only for the person to whom it is issued by Oakglen. It may not be reproduced either in whole, or in part, without our written permission. The distribution of this document and the offer and sale of the investment in certain jurisdictions may be forbidden or restricted by law or regulation. This communication does not constitute the solicitation of an offer to purchase or subscribe for any investment or service in any jurisdiction where, or from any person in respect of whom, such a solicitation of an offer is unlawful.

Investments may have no public market or only a restricted secondary market. Where a secondary market exists, it is not possible to predict the price at which investments will trade in the market or whether such market will be liquid or illiquid. As such, for investments not listed or traded on any exchange, pricing information may be more difficult to obtain, and the liquidity of the investments may be adversely affected. A holder may be able to realise value prior to an investment’s maturity date only at a price in an available secondary market. The issuer of the investment may have entered into contracts with third parties to create the indicated returns and/or any applicable capital protection (in part or in full). The investment instrument's retention of value is dependent not only on the development of the value of the underlying asset, but also on the creditworthiness of the Issuer and / or Guarantor (as applicable), which may change over the term of the investment instrument. In the event of default by the issuer and/or Guarantor of the investment, and / or any third party the investment any income derived from such contracts is not guaranteed and you may get back none of, or less than, what was originally invested. Parties other than the Issuer or Guarantor (as appropriate) mentioned in this document (for instance the Lead Manager, Co-structurer, Calculation Agent or Paying Agent) do neither guarantee, repayment of the invested capital nor financial return on the investment product, if nothing is indicated to the contrary. Any capital protection given is usually an inherent part of the product; provided through the use of options, futures or other derivative products. You may have to accept smaller returns on an investment relative to a direct investment in the underlying index, basket, etc. because of the costs involved in providing the capital protection. Such capital protection normally only applies if the investment is held until maturity. The amount of initial capital to be repaid may be geared, which means that a fall in the underlying index or securities may result in a larger reduction in the amount repaid to investors. Alternative investments, derivatives or structured products are complex instruments that typically involve a high degree of risk and are intended for sale only to investors who are capable of understanding and assuming the risks involved. Structured products carry counterparty risk, in that in the event of default by the issuer you may lose some or all of your capital invested even when the product carries capital guarantees. Where this document relates to emerging markets, such investments should be made only by sophisticated investors or experienced professionals, who have independent knowledge of the relevant markets, are able to consider and weigh the various risks presented by such investments and have the financial resources necessary to bear the substantial risk of loss of investment in such investments.

The services described are provided by Oakglen or by its subsidiaries and/or affiliates in accordance with appropriate local legislation and regulation. Certain products and services may not be available in all locations or to all Oakglen clients.

Data Source: Oakglen Wealth (Jersey) Limited and Oakglen Wealth Limited, otherwise specified.

Oakglen is a registered business name of Oakglen Wealth (Jersey) Limited and Oakglen Wealth Limited.

Oakglen Wealth (Jersey) Limited is regulated in Jersey by the Jersey Financial Services Commission for the conduct of Investment Business and is a limited company with company number 121454, incorporated in Jersey on 7 June 2016. Its business address is 4th Floor, 1 IFC, St Helier, Jersey, JE2 3BX.

Oakglen Wealth Limited is authorised and regulated by the Financial Conduct Authority. The registered address of Oakglen Wealth Limited is 30 Golden Square, London, United Kingdom, W1F 9LD and is registered in England and Wales with number 13182724.