Cool heads needed amid volatile earnings season


The noise

  • The chances of a US stimulus bill being passed before next Tuesday’s Presidential election have all but evaporated after months of talks. Investors responded to the news with pullbacks in all major developed markets as investors prepare for a volatile few weeks whilst the election result dominates news headlines and causes sentiment to shift back and forth. The deal is still likely to pass eventually but may not be until 2021 if the results of the election shift the sands of political power in Washington.

  • The second wave of Coronavirus cases is now well and truly underway in Europe. German Chancellor Angela Merkel has warned of a long, hard winter ahead as she reinstated a national lockdown this week. France will follow suit today, with President Macron urging his citizens to stay at home unless for essential work or medical reasons. In the UK, a new study shows almost 100,000 people are catching the virus every day, putting pressure on the government to change policy from a regional approach.

  • As we move into results season, there has been a mixed bag from companies reporting to markets this week. The 3rd quarter results contributed to market froth as investors continue to scour news flow to determine which companies are coping well with restrictions whilst attempting to identify those for whom the outlook is still poor.

The numbers


The nuance

Investors have received further insight this week into how individual companies are faring with continued pressure from pandemic prevention measures. These snippets, in conjunction with speculation about the results of the US election and stimulus bill, have led to a significant degree of volatility in markets this week with most global markets finishing the week down.

As long-term investors, it’s important to keep a cool head in such scenarios. Attempting to chase the short-term noise is counter-productive for those looking to compound returns over the long-term. However, these large fluctuations do provide opportunities to add on weakness where markets have dropped across the board, causing quality businesses to get swept up in the storm of broad-based pessimism.

On the other hand, this week has seen further strength in a number of tech names ahead of solid expected results next week. We keep a close eye on valuations in these names, looking to pare back positions which run ahead of themselves. The analyst teams scrutinise company reports as they emerge, ensuring that each holding continues to earn its place in portfolios and has a runway for growth despite the backdrop.


Quote of the week

“Who at the Oregon Health Authority thought this was a good idea?” Samantha Swindler, Oregonian journalist

On the whole, news headlines over the last few months have made for bleak reading. Daily reports of new cases of Covid-19 as well as hospitalisations and deaths is a tragedy which has come to feel alarmingly normal to most of us by now. The Oregon Health Authorities seem to have made a similar observation but arrived at a rather bizarre conclusion. Yesterday, a senior health advisor for the Authority announced statistics on recorded cases and deaths – dressed as a clown. She wore a full face of make-up, complete with a red tie and a polka dot shirt; it’s fair to say it made for a slight mismatch with the content of her announcement. Perhaps most strangely, she made absolutely no reference to the costume throughout. Lines such as “run by clowns” really do write themselves.


Phil Smeaton
Chief Investment Officer

All investment views are presented for information only and are not a personal recommendation to buy or sell. Past performance is not a reliable indicator of future returns, investing involves risk and the value of investments, and the income from them, may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.

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