Stocks are falling today because:
1. The Bank of Japan tightened monetary policy on Wednesday more aggressively than expected, leading to a surge in the value of the yen and instability in the Japanese stock market.
2. A weak US jobs report on Friday raised fears about an imminent recession.
These are not, in my view, valid reasons to sell.
1. As Robert Armstrong explains in the Financial Times, the market reaction to the jobs report appears overdone.
www.ft.com/content/dc5e789d-664f-4624-97e5-3cc1aadc503e
The report may have been distorted by the weather, while high-frequency economic data such as restaurant bookings and card spending remain solid. Friday’s report was not even the worst jobs report of the year, yet the market narrative has quickly changed towards an inevitable recession. This seems like an overreaction.
2. After falling 6% on Friday, Japanese stocks fell another 12% today. Moves of this magnitude, unexplained by fundamental news, are a classic sign of a panic. Panics are usually times to buy, not sell.
3. It is comforting that while stocks are selling off, bond yields are falling. This tends to stabilise markets, as lower rates give a boost to the economy. It would be much more worrying if both bonds and stocks were falling at the same time.
My interpretation of the market action is that today is a day when people get scared and sell simply because others are selling. If there is one general rule to outperforming in the markets, then it is “do the opposite to what the crowd is doing”. Today, this rule would call for buying, not selling. It is true the economy is weakening, and the easy money in this cycle has already been made.
On the other hand, a soft landing remains a possibility, because central banks have room to ease monetary policy. It is far from a certainty, perhaps even unlikely, that a bad recession will now follow.
Our portfolio has fallen about 5% during this sell-off, slightly outperforming the market. This is an OK result because I normally run more risk than the market and so expect to underperform in sell-offs.
What has helped the portfolio is the repositioning that was done in June. As interest rates have fallen, real estate stocks in the portfolio have outperformed, while banks have underperformed.
I see no reason to make changes to the portfolio today as a result of the market action over the last three days. Much worse than this has happened over the past 20 years. 60% of the portfolio is in companies that benefit from lower interest rates. As the market stabilises, these companies may perform well going forward.
2024 performance
@triangulacapital +25.9%
$SWDA.L +9.9%
Portfolio changes
Host Hotels, TIM SA, and Anheuser Busch were sold. Enel and British Land were bought.
