October – Might as well skip to November
By now, we are all tired about the non-stop coverage and exposure to the US election. Admittedly, it is an important event as it will give a sense of direction to certain sectors depending on who wins the White House. And with the US representing over 72% of the developed World Index (and over 65% even if emerging markets are included), this will ripple around the world.
With just 5 days before election day, it is pretty much a coin flip and we will leave this topic aside and get back to it in the November letter. As such, with all eyes on November 5th, the month of October was relatively muted and markets didn’t swing as they have in past months this year.
Data source : Bloomberg
There were some good macroeconomic news coming out of the US, though everything seems irrelevant in the face of the upcoming elections. For example, September unemployment is back down to 4.05%, the level it was at back in June this year, thereby erasing the increase observed the past 2 months. Real GDP annual growth rate quarter over quarter expended by 2.8% during Q3, mostly on the back of increased consumer spending. When factoring in the increasing debt levels and more importantly the huge jump in credit card interest rates (see further chart of the month), it is hard to imagine the consumer continuing this trend much further. Some economists are explaining the healthy growth rate by the fact that the US deficit has reached 6.8% of GDP for the year 2024 (it was at 6.4% for the year 2023), which is unprecedented in a period of peacetime and low unemployment. This has basically muted the effect of the Fed tightening policies and placed the economy on life support. When (and if) the government normalizes fiscal policies, it might lead to a recession. Inflation is down to 2.4%, though core inflation is slightly up at 3.3%. At the end of the month, markets were down in the US with little volatility.
European indices are down this month too, further widening the relative performance to the US. There is little to rejoice for in the euro area. The inflation figure for September that came out mid-October pointed to a tamed inflation of 1.7%, but then the October flash figure showed a bounce back to 2%. PMIs remain in contraction territory. The most positive news coming out of Europe is that GDP growth is inching up to 0.9%. But with a looming trade war with China (and maybe with the US if the republican candidate wins), this could jeopardize future economic growth. Indeed, Europe imposed stiff tariffs on Chinese electrical vehicles (up to 45% on certain brands).
China is investigating ways to retaliate to the European tariffs in kind, dairies, pork and alcoholic products being likely targets. Since last month’s significant interventions by the government and the initial euphoric reaction, local stock markets have already lost steam and corrected downwards. Just like Europe, China is also at risk of further tariffs on the part of the US, creating a lot of headwinds for the region.
Our summary recommendations
We are not making significant changes to our allocation and are not betting on the outcome of the election. While there may be gains to be made in the short-term depending on who wins, we prefer not to gamble and are looking beyond, to the medium and long-term, in an environment where rates will continue to go down, consumer spending is bound to erode and geopolitical risk is an everyday reality irrespective of the outcome of the US election.
This is done by emphasizing decorrelated assets (such as private investments), structured products with significant downside protection and interesting coupons, and reducing cash, given the dwindling fiduciary rates or treasury yields.
Chart of the month
The chart shows the increase in credit card interest rates over the past two and a half years. Surely, we can all agree that paying 23% on credit card debt is not sustainable in the long term, and that at some point, those debt (+interest) will have to be repaid at the cost of consumption. We worry of the time when consumers won’t be able to carry the US GDP growth further and if said growth will be able to come from somewhere else.
Data source: Bloomberg
Disclosures
This document has been issued by Stork Capital, registered with the Swiss Association of Asset Managers, which is regulated by FINMA.
Offering Documents. This material is provided at your request for informational purposes only and is not intended as an offer, a solicitation of an offer, to buy, sell or carry out any transaction on investment instruments or other specific product, it only contains selected information with regards to Stork Capital’s services. The analysis and information contained herein do not constitute a personal recommendation or consider the particular investment objectives, investment strategies, financial situation and needs of any specific recipient. Certain services and products are subject to legal restrictions and cannot be offered worldwide on an unrestricted basis and/or may not be eligible for sale to all investors. All information and opinions expressed in this document were obtained from sources believed to be reliable and in good faith, however, Stork Capital cannot guarantee the accuracy of such content, ensure its completeness, or warrant that such information has not or will not change.
Prior to any investment, prospective investors should carefully read the latest offering documentation, including but not limited to the fund’s prospectus which contains inter alia a comprehensive disclosure of applicable risks. The relevant constitutional and offering documents are available free of charge at Stork Capital’s principal office.
Risk Information and Potential Loss. Financial advisers generally suggest a diversified portfolio of investments. The funds described herein do not represent a diversified investment by themselves. This material does not constitute investment advice and should not be used as the basis for any investment decision. This material does not purport to provide any legal, tax or accounting advice. Prospective investors should consult their financial and tax adviser before investing in order to determine whether an investment would be suitable for them.
Any investor or prospective investor should be aware of the risks inherent in trading activity, such as but not limited to currency risk, interest-rate risk, market risk, insolvency risk, and is aware that trading can be very speculative and may result in losses as well as profits. Therefore, an investor should only invest if he/she has the necessary financial resources to bear a complete loss of this investment.
Portfolio Allocations. This material contains information that pertains to past performance or is the basis for previously-made discretionary investment decisions. The value of investments may fall as well as rise and investors may not get back the amount they invested. Thus, past performance does not necessarily provide any guarantee of future results. Accordingly, this information should not be construed as a current recommendation, research or investment advice. It should not be assumed that any investment decisions shown will prove to be profitable, or that any investment decisions made in the future will be profitable or will equal the performance of investments discussed herein. Any mention of an investment decision is intended only to illustrate our investment approach and/or strategy, and is not indicative of the performance of our strategy as a whole. Any such illustration is not necessarily representative of other investment decisions.
Portfolio holdings and/or allocations shown above are as of the date indicated and may not be representative of future investments. The holdings and/or allocations shown may not represent all of the portfolio's investments. Future investments may or may not be profitable.
Intended Recipients. This material and any information contained therein shall only be for the personal use of the intended recipient and shall not be redistributed to any third party, unless Stork Capital or the source of the relevant market data gives their approval. This material is not directed to any person in any jurisdiction where (on the grounds of that person’s nationality, residence or otherwise) such documents are prohibited. In particular, neither this document nor any copy thereof may be sent, taken into or distributed in the United States or to any US person.
Disclaimer of Endorsement. References in these discussion materials to any specific manager, service provider, vendor, market, index, financial procedure, process, resources, or commercial services do not constitute nor imply its endorsement, recommendation, or favour by Stork Capital. Views and opinions expressed are for informational purposes only and do not constitute a recommendation by Stork Capital to buy, sell, or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change, they should not be construed as investment advice. The website links provided are for your convenience only and are not an endorsement or recommendation by Stork Capital of any of these websites or the products or services offered. Stork Capital is not responsible for the accuracy and validity of the content of these websites.
Investment Risks. Risks vary by the type of investment. For example, investments that involve futures, equity swaps, and other derivatives, as well as non-investment grade securities, give rise to substantial risk and are not available to or suitable for all investors. We have described some of the risks associated with certain investments below and, in certain cases, earlier in this presentation. Additional information regarding risks may be available in the materials provided in connection with specific investments. You should not enter into a transaction or make an investment unless you understand the terms of the transaction or investment and the nature and extent of the associated risks. You should also be satisfied that the investment is appropriate for you in light of your circumstances and financial condition.
Alternative Investments. Private investment funds and hedge funds are subject to less regulation than other types of pooled vehicles. Alternative investments may involve a substantial degree of risk, including the risk of total loss of an investor’s capital and the use of leverage, and therefore may not be appropriate for all investors. Liquidity may be limited. Investors should review the Offering Memorandum, the Subscription Agreement and any other applicable disclosures for risks and potential conflicts of interest. Alternative Investments may be subject to less regulation than other types of pooled investment vehicles such as mutual funds. Alternative Investments may impose significant fees, including incentive fees that are based upon a percentage of the realized and unrealized gains and an individual’s net returns may differ significantly from actual returns. Such fees may offset all or a significant portion of such Alternative Investment’s trading profits. Alternative Investments may not be required to provide periodic pricing or valuation information. Investors may have limited rights with respect to their investments, including limited voting rights and participation in the management of such Alternative Investments.
Real Estate. Investments in real estate involve additional risks not typically associated with other asset classes, such as sensitivities to temporary or permanent reductions in property values for the geographic region(s) represented. Real estate investments (both through public and private markets) are also subject to changes in broader macroeconomic conditions, such as interest rates.
The sole place of jurisdiction for all disputes arising out of or in connection with this material and/or the present disclaimer and/or to the use of this material is Geneva, Switzerland, and it shall be exclusively governed by and construed in accordance with Swiss law.