The month passed without too many alarms but with a few surprises and political shenanigans along the way. This included an unexpected deal which seemed at one point to have a chance of going through, before being scuppered by the remain favouring majority in the houses of parliament.
Market & Portfolio Returns Comments.
For UK equities this meant a pick up for the more domestically sensitive sectors and indices like the Mid 250 and Small Cap which delivered positive returns in the month. While the broader more international larger indices the FTSE All Share, FTSE 350 & FTSE 100 all saw negative returns as the effects of a relief rally in Sterling hit sentiment on some of the larger stocks and sectors. For the Compound Income Scores Portfolio, with its bias toward Mid & Smaller stocks, this meant a better month relative to the broader market as it clawed back some of the under performance from last month. The small positive return left it up by 14% YTD which is 1.2% ahead of the FTSE All Share. If it is of any interest you can see the full performance history since inception in April 2015 here and detail about the Scores which help with the stock selection here.
Market Timing Indicators & Outlook Comments.
Despite this the Market Timing indicators that I produce for the UK markets remained in positive territory to varying degrees with the 250 being the most bullish & the Small Cap Index the least with FTSE 100 in between. Given this and despite a small tick up in the US unemployment rate, no sell signal has been generated again this month. So despite all the political worries domestically over BREXIT and the forthcoming election and the on going trade dispute and global economic slowdown one should probably remain invested.
Worth bearing in mind though that the US Manufacturing ISM index remained below 50 this month (recession territory) and the US yield curve went negative a few months back (an advance warning of recession). Thus far though, despite the economic slowdown, a robust employment and wages background seems to have been sufficient to keep things ticking over kept consumers spending. Corporate spending however seems to have turned quite cautious with investment spending tailing off quite dramatically and not just in the UK due to BREXIT, while share buy backs and dividend have continued to support markets.
This has however left UK equities looking pretty unloved and good value compared to both their history and other asset classes. This also suggests it is probably worth remaining invested as if a few things turn out better than expected then there could be quite a decent rise in sterling based assets including equities. If not then at least the lower valuations than elsewhere mean they might offer more downside protection than some other markets.
Summary & Conclusion.
So we survived the often tricky October without too much harm despite all the scares along the way. Timing indicators and valuations suggest that in the UK at least one should remain invested for now. While in the UK we also have the General Election and associated BREXIT bullshit to look forward to. We are also entering a seasonally stronger period with the potential for some resolution of the political log jam, if any party can come out of the election with a working majority, big if I know. I must admit for about 5 minutes there I thought that might have been possible if the Tories had done some kind of leave pact with the BREXIT party, but Nigel Farage seems to have ruled that out now. This seems to make a split of the leave vote more likely while remain favouring parties seem to still be talking about some kind of rebel alliance and many are already talking about tactical voting (sigh).
To me it looks like a hung parliament or or perhaps some kind of remain coalition might be the end result but who knows?!