“The good of other times let people state; I think it lucky I was born so late”
Ovid
The traditional early September think piece centres on the natural reset that a generalised return to work (and for the younger generation, school) brings after the typically languid summer holiday period. As 2020 is clearly a very different style of year, let us rip up the normal script and ask the simpler question of ‘does the world feel lucky?’
I grant you, after the travails of the last six months, most people are feeling anything but lucky given the direct and indirect impacts of the COVID-19 pandemic and this is something we should never forget. However, just on the narrow perspective of the global financial markets, the hope quotient has progressively risen since the equity market lows of late March. August is usually a month of potential investment minefields as any event tends to be accentuated due to lower levels of liquidity. However, August 2020 saw the most quoted world index benchmark achieve its best eighth month of the year since 1986.
Inevitably there are a few reasons for this. The biggest innovation at the Jackson Hole Symposium (wonderfully described elsewhere as the ‘Glastonbury for central bankers’) was not the video delivery that anybody could access, but the shift of the U.S. Federal Reserve to average inflation rate targeting. In practical terms, this means a greater tolerance of periods of time with inflation above their two percent target level, to counterbalance the lengthy periods of recent time when inflation has been below their two percent target level. This should theoretically help support job creation but risks the return of a higher price level.
To borrow Hemmingway’s turn of phrase, inflation often happens ‘gradually and then suddenly’ and in a world of not just rising unemployment and mixed product demand but also evolving supply chains and pre-winter stockbuilding, it cannot be ignored. And this counts double at prevailing fixed-income yields, which across most geographies and classes offer precious little anti-inflation protection.
To borrow Hemmingway’s turn of phrase, inflation often happens ‘gradually and then suddenly’…
Still, global central banks remain voracious in their quantitative easing derived demand, which is fortunate as almost all governments around the world are intent on trying to finance eye-poppingly large budget deficits. As investors, we are taught not to ‘fight the Fed’ (and the balance sheets of the other major central banks) but no institution is infallible. Trying to finance large deficits for too long at negligible interest rates always ends in tears unless savings rates rise sharply. And as the paradox of thrift notes, this always causes problems for consumption centred economies such as our own.
But do not get too disheartened and start immediately dusting down the history books that show that September and October collectively, on average, are the worst two performing months of the year for the equity markets. There has been nothing average about 2020 so far. The key to countering difficult policymaking trade-offs around inflation or fiscal deficits that could easily overhang financial markets remains our old friend of human ingenuity.
The best shorthand guide to more faith in prospects remains not in soaring technology stocks per se but a broadening equity market seeing gains in more sectors and different geographies than just the United States.
Whilst every death from the COVID-19 pandemic is a tragedy, it is noteworthy that even burgeoning second waves of infection in East Asia and across Europe have been better controlled and are having less of an impact in terms of both the human and economic cost as both business and individuals adjust. Whilst there is much to be done in terms of rebuilding the feel-good factor across all economic actors, virology researchers from multiple geographies and teams are trying to close in on a credible vaccine product. A feeling of optimism is always centred on a mix of practical realities and an anticipated future. There will be continuing shifts in both over the rest of 2020 and into 2021. The best shorthand guide to more faith in prospects remains not in soaring technology stocks per se but a broadening equity market seeing gains in more sectors and different geographies than just the United States. Investors feeling lucky and willing to fully back human ingenuity know where to look.
The information contained in this article is for general consideration only and any opinion or forecast reflects the judgment of the Research Department of Raymond James & Associates, Inc. as at the date of issue and is subject to change without notice. Past performance is not a reliable indicator of future results.
You should not take, or refrain from taking, action based on its content and no part of this article should be relied upon or construed as any form of advice or personal recommendation. The research and analysis in this article have been procured, and may have been acted upon, by Raymond James and connected companies for their own purposes, and the results are being made available to you on this understanding.
Neither Raymond James nor any connected company accepts responsibility for any direct or indirect or consequential loss suffered by you or any other person as a result of your acting, or deciding not to act, in reliance upon such research and analysis. If you are unsure or need clarity upon any of the information covered in this article, please contact your wealth manager.
Black MondayOn 19 October 1987, the stock markets experienced a dramatic plunge that prompted many firms to shut down their trading desks and turn off their phones to minimize internal losses. Raymond James refused to do the same. Our desks stayed open to help meet clients’ needs, resulting in our first and only unprofitable quarter since the firm went public in 1983. |
 |
Who was Raymond James?The Raymond in our name is actually from Edward Raymond, owner of a 15-employee mutual fund sales group, Raymond and Associates, along Florida’s west coast. He sold his company to Bob James on 15 July 1964, on condition that the surviving firm be called Raymond, James & Associates. Three days after the sale, Ed Raymond was involved in a near-fatal automobile accident and never joined the firm. Nonetheless, even after Raymond had passed away, Bob James insisted that his name remain on the door – ahead of James’ own. That was a promise he made to Ed Raymond three days before the accident, and Bob James was a man who kept his promises. |
|
Bear Market of 1974The severe bear market of 1974 threatened the existence of Raymond James, which was bleeding capital by the day. Tom James, his father and other leaders took extreme measures to keep the firm afloat, slashing costs, foregoing paychecks and even attempting to sell the firm for just enough capital to protect client assets and retain as many associates as possible. The story could have ended very differently if not for a sharp upturn and continued rebound in the stock markets late in the year. |
|
Taking Raymond James PublicWhen consideration was being given to taking Raymond James public, Tom James penned a letter to shareholders (largely employees at the time). ” … the public offering should be considered as a statement of our independence. While this is a psychological rather than an economic rationale, it is nonetheless very important. We have asserted for some time that we are not interested in becoming a small part of a very large corporation. That assertion results mainly from the inclinations of management rather than the economic benefits associated with either alternative. The public stock offering affords us the opportunity to enjoy a little bit of the best of both worlds. While shareholders will be given liquidity at fair market value, we will still have the ability to control our own destiny.” After 40+ years of Tom’s leadership, upon becoming CEO, Paul Reilly was often questioned about whether the company might ultimately surrender its cherished independence and be acquired by some larger entity. His response: “Not while I’m around.” It’s a theme that continues today. |
 |
