Page 12 - ISQ UK_October 2017

INVESTMENT STRATEGY QUARTERLY

Thinking about Q4:

Should we Expect the Usual Seasonal Strength?

Chris Bailey, European Strategist, Raymond James Euro Equities*

"Good seasons start with good beginnings" Sparky Anderson

For most investors 2017 has been a bumper year versus benchmarks
such as cash in the bank. This point was reinforced by year-to-date For most investors 2017 has
data up to the end of the third quarter, which showed across been a bumper year versus
mainstream multi-asset class markets in Sterling terms only if you
were invested in silver, Brent/crude oil or the Russian stock market did benchmarks such as cash in
you make a loss.
the bank
So what should we expect for the fourth quarter? History suggests for
the equity market ‘more of the same’ as October and December are
two of the top three months using a data set since 1980 for generating
a positive return. And if you go back even further, the data is even
more compelling as, in the 27 years since 1970, the UK stock market
has only seen negative returns in October in six years with only Value investors may spy a relative investing opportunity but this will
December having a smaller number of losses observations. only close if sentiment - as best reflected by the value of the Pound on
the international foreign exchange markets - continues to rise back
That sounds like good news. However, two other elements need to be closer to the levels it was at before the Brexit referendum.
considered which are often interlinked: events and October’s penchant
for volatility. A fuller renaissance of the Pound is inevitably interwoven with the
Brexit negotiations, which appear to be proceeding more along of the
There are many factors which induce volatility in stock markets and lines of both embracing some element of ‘transitional arrangements’
also, at any one time, many potential worries for investors. Issues such and being ‘bespoke’. Optically this is better as moving away from a
as tensions building in the Korean Penisular do cast a long shadow but very rigid two year timetable for Brexit is considered, by most market
are difficult to predict. Meanwhile, matters such as the potential for participants, as likely to reduce shorter-term risks to trade, jobs and
the Bank of England to raise interest rates have been not only flagged, economic growth. However, the grey cloud of political uncertainty still
but also in terms of the magnitude of the shift, are unlikely to be lingers and, whilst the UK government retains only a slim majority,
especially material or influential per se. multiple scenarios still exist. Historically, one observation would be
that politicians rarely vote for their own demise, and this provides the
Far more impactful are the twin combinations of fundamental opportunity for the current government to continue deep into its
company data and general investor sentiment. As always, the big Parliamentary tenure.
corporate quarterly earnings disclosures in the six weeks from mid-
October will provide multiple insights on individual corporate names, Politics and Brexit resonate with global investors looking at the UK.
and collectively the broader markets. There remains a clear dichotomy Concerns have been high for over a year now and regularly, in well-
in anticipated UK corporate reporting, between the muted renowned global fund management surveys, the UK has consistently
expectations for more domestic centred businesses and the more been at or near the bottom of allocation tables versus historic norms.
upbeat anticipation for more internationally centred companies. Such low sentiment of course can be as much an opportunity as a

*An affiliate of Raymond James & Associates and Raymond James Financial Services
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