Quotidian Investments Monthly Commentary – August 2017
Year after year, equity market trading volumes in August are extremely light, reflecting the fact that large numbers of market makers and traders are away on their summer holidays. 2017 has been no different and so price action in equities throughout August has continued to be subdued but also very volatile.
This month’s report is therefore shorter than usual (which will no doubt be a blessing for regular readers of my turgid prose) simply on the basis that when there is nothing of substance to say then it’s best to say nothing.
August’s bumpy market ride is best witnessed by the fact that the S&P 500 has had as much daily price volatility in the most recent 12 trading days (to the end of August) as it had experienced in the first 152 trading days of 2017 (that is, from start January to end July). Intraday swings in the index of 1% or more have been a notable feature.
As ever, global markets follow the lead set by the USA and so the UK market in August has been equally capricious. The more cynical among us are inclined to interepret this price manipulation as a series of traps set during quiet and light volume trading periods in the hope of seducing the unwary into what superficially might be perceived as the start of upward momentum. In our view the siren’s call should be resisted, certainly for the time being.
On 31st August 2017 the FTSE100 closed at 7340.62 (a rise of +0.80% for the month) and it now stands at +4.03% for the 2017 year to date. By comparison the Quotidian Fund’s valuation at the same date shows a decline of -0.33% for the month of August but for the 2017 year to date the Fund is up +30.95%.
Since 1992, August has invariably been the worst performing month of the stockmarket year. Over that 25 year time period the S&P 500 index has suffered an average loss of 0.70% during August. Conversely, the best performing month over that same timeframe has consistently been April.
Of the 21 holdings we disinvested from for safety’s sake at the end of June, all but 2 of them are now trading at lower valuations. There will, of course, be an appropriate time to buy back into them all but, for the time being, we continue to be happy to sit out of equity markets until the geo-political picture becomes clearer, the global economic situation gives us greater assurance that upward momentum is more than just a mirage and that the risks inherent in equity investment revert to a point where, on balance, the potential for profit becomes more compelling. We remain vigilant.
Having said that, we also recognise that in 11 of the past 14 calendar years the S&P 500’s high point for the year has been achieved between September and December. More pertinently, over the past 25 years the last quarter of the year has consistently comprised three of the best-performing months on average for the S&P 500 Index. October ranks second-best, November third-best and December fifth-best. Taken together, these three months have produced 54% of the index’s total return. Opportunity may knock.