Quotidian Investments Monthly Commentary – May 2022
We approached the last trading week of May having endured seven successive down weeks in US equity markets (and uninspired, directionless global markets too). Surprisingly, such a long, unrelenting and unbroken period of negativity has actually never occurred in American markets before and we had to call upon all our reserves of patience, will-power and determination just to maintain our investment positions. Indeed, we actually built on some of our holdings at advantageous prices.In the first week of May we improved our investment performance with a 5% uplift and were beginning to think that we might have reached the long-awaited bottom of this extended correction. But the middle of the following week saw the largest one-day markdown for roughly three years which dashed that hopeful but premature thought. Intra-month as a whole we then fluctuated between 42% down for the year to date at our worst point and 31% down year to date at our best (which was at month end). As you can imagine, price movements of this magnitude and irregularity confound rational analysis and are much more sentiment-related than economically driven. The one certainty that helped us to maintain our equilibrium was the knowledge and belief that stock-markets always bounce back and that the darkest hour is most often the one just before dawn. On 20th May we also noted a comment from J P Morgan that it now saw the US markets as oversold. Rich coming from them as the very people who had led the charge downwards from day one of 2022 and ever since. On the more positive front, we take reassurance and comfort from the fact that all bar one of our corporate holdings have now reported their latest results and (out of our 18 stock-specific holdings) 15 of them have issued positive surprises with their results being above market expectations. The three who fell marginally short (Google, Amazon and Activision Blizzard) are organisations that we still feel positive about and overall they haven’t actually caused us too much of a problem. We will learn a lot more when the Federal Reserve announces its next interest rate move (in mid-June). We expect to see another 50 basis points increase (although the clown on the committee who had predicted the need for a 75-basis point increase last month is still in full spate)! All we can say about him is that he’s a nobody…..no doubt motivated by wanting to be a somebody and drawing attention to himself outrageously to do so. Perhaps he is trying to be objective but it seems to us that he approaches every fiscal situation with a completely open mouth. There is a word for that type of self-gratifier and that word is not ‘scientific’. From his continual verbal incontinence, he gives the strong impression that he lacks the ability to think and speak at the same time. On 31st May 2022 the FTSE100 index closed the month at 7607.70 (a rise of +0.84% in the month of May itself) and it therefore now stands at +3.02% for the 2022 calendar year to date. By comparison, the Quotidian Fund’s valuation on the 31st May shows a rise of +0.80% for the month and it follows that the Fund’s year to date measurement closed May at -31.13%. Incredible volatility throughout the month only to end more or less in the same place that we started (and grateful for small but positive mercies after fully recovering from such a major mid-month one-day fall). The rationale behind this recent upward momentum in inflation around the world generally (and in the UK and the USA in particular) has been blindingly obvious for quite some time and that point has been highlighted in a number of our monthly reports earlier in the year. We have continually briefed that because the proximate causes of this period of rising inflation were relatively short-term so this current inflationary spike will likely be temporary too. However, economic data releases in the USA continue to indicate that consumer confidence and consumer spending remains strong even whilst inflation figures are increasing. Despite that, until the last trading week of May stock-market prices had been continuing to fall. Throughout the whole of the final week of May, though, US markets rebounded firmly upwards. There is, of course, a chance that last week was nothing more than a deliberately misleading bear squeeze but we have been waiting patiently to try to identify a bottoming out of this period of blinkered negativity in equities and we are minded to see this past week’s decisively upbeat and confident tone in US equities as that long-anticipated change of trend from negative to positive. The only caveat we would add in that respect is that our much more positive view now depends entirely upon the Federal Reserve continuing to follow its well-touted plan to contain inflation by raising US interest rates by only 50-basis points and just three more times between now and the year end. By happy coincidence the 29th May is the anniversary of the day that Sir Edmund Hillary and Tenzing Norgay completed their climb to the summit of Everest in 1953; the first to do so. This is appropriate and pertinent simply because Hillary, in his celebratory speech after this huge achievement is quoted as saying: “It is not the mountain we conquered but ourselves” (by which he refers to overcoming the doubts and fears that, as human beings, we are all occasionally subject to). For investors and investment managers alike, the past five months have tested our resolve, our patience, our courage and our beliefs. We’re still standing and still remain confident of a full recovery. It is only a matter of time.