History doesn’t repeat itself, but investors do, especially recently. Their refrain continues, the markets are standing still but that is not necessarily a bad thing.
I got into the habit of choosing a song to introduce my financial columns. This ritual, which I have practiced for years, allows me to step back from events and consider them from another angle. Music softens morals, they say. I don’t know if this applies to those in the markets but this month I’m tempted to turn up the decibels to cool their internal moods. And I chose Aerosmith’s classic “Same Old Song and Dance” to accompany me in this review.
You’ll have to come back for the sweetness, I grant you, but I haven’t found anything more evocative to describe this sort of repetitive pattern in which the markets seem to have been evolving for two years. “Central banks, ouch, ouch, ouch, economic figures, nothing is going well, results season, here we go again.” The quarters pass to the rhythm of this refrain. And we investors must keep dancing. The evening is getting long, it must be said, but the markets are rising.
On the stock market side, the pogo had difficulty restarting in October. The American market, eternally on the move, manages to snatch a few basis points, the SMI and the Nikkei follow the pace sluggishly, while the Eurostoxx staggers. When at the Chinese market, he stayed at the bar. While in September it rose from its ashes after a liquidity treatment, today it seems to be falling back into its old ways (at least from the point of view of the Western investor).
The phases where markets wander and investors go in circles are just as important as those where the direction is clear.
It is already difficult to find explanations when markets move (Index movements result from millions of interactions between market participants, a large part of which are driven by algorithms), but we will find a few headlines to give them meaning ), but then when nothing happens… well, I would turn the decibels back on for a while.
More seriously, if the stock markets lacked actions, it is because the news lacked news. Rate cuts that are long overdue without any shortage of liquidity, company results that are slightly less flamboyant but without surprises, economic figures that comfort neither the optimistic forecasters nor the prophets of recession. Even when it comes to the American election, things are getting hotter. Fortunately, American banks, which all recorded profits in Q3 2024, spiced up the news by predicting a gloomy future for the stock market.
For more adrenaline, we had to turn to the bond markets (if someone had told me one day that I would write this sentence!). Rates go up, finally they go down, finally you understand me. The lying game between bond managers and central bankers continues. When they told us at the start of the year that they would take their time, the bond market was counting on six rate cuts. Now that central banks are hinting that we are a few hundred basis points above neutral rates, the market is heading in the other direction. The “bond vigilantes” have turned into unionists, it seems.
The phases where markets wander and investors go in circles are just as important as those where the direction is clear. First, they are a symptom of deep digestion: a financial ecosystem that processes information is a good sign. This is much better than hasty capital allocation. Then, it allows us investors to take stock of our strategies. Finally, when the most popular markets offer fewer prospects, our attention may turn to other parts of the ecosystem in search of alpha or signals.
Commodity markets, a reflection of global demand and a geopolitical barometer, are a good example. The fact that they did not fall into any excess in October is rather reassuring. Or the resilience of gold, which takes advantage of all the uncertainties and outperforms the stock market since the start of the year. Or finally the renewed vitality of cryptocurrencies which deserves our attention. While waiting to find Satoshi, we can count on Trump.
Certainly, recently asset classes have tended to re-correlate, but the sources of return remain abundant, as do the pockets of value that can be exploited to build structurally diversified portfolios. And that’s a good thing for investors. The same old song – that of the markets or that of Aerosmith, the choice is yours – will surely accompany us for the next few months but at least we can dance on several feet.
