Perhaps the spookiest thing for portfolio managers and stock market investors alike this Halloween season, is the realization that October in the market has been quiet … too quiet (I know, gag …). Around the corner we’ve all visualized the monster waiting for us – some shocking election bombshell or perhaps a Halloween Ground Zero somewhere in the world as the Middle East tensions are high. Those jump scares could become real very quickly, and while we might place our hands with trepidation on our children’s and grandchildren’s shoulders and tuck them safely behind us, we must realize that neither Freddie Kruger nor Jason Vorhees has struck this month. We are not in the shower in the Bates Motel … at least not yet.
There are just so many potentially catastrophic geopolitical and socioeconomic concerns that we can turn into the next 7-movie horror series. But we really don’t have to do that to ourselves, do we?
As we emerge from our huddles in our dark houses, we should realize that life moves forward and just maybe the horrors we conceived of on the other side of the wall won’t actually materialize (at least not in terms of this year in the stock market. Apologies to those affected by the storm).
The proof is in the numbers: the S&P 500 is up 1.48% in October and 22.5% year-to-date1. The lesson is, of course: stay invested. Panic leads to much less desirable outcomes both in our favorite horror movies (as the ill-fated teenager races toward the barn loaded with sharp implements), and in our investing world. October is traditionally, of course, the month to panic – see 1987 and 2008 – but let’s not give in this October. We rely on our baskets of asset allocation to not take on too much risk in any one basket of your wealth.
One side note here is worthy of mention. Due to interest rates staying high we’re seeing small cap companies mired in debt service and now the share of unprofitable Russell 2000 companies is at 43%, which is the high since Covid pandemic of 2020 and is even higher than the financial crises of 20082. They are finding it very difficult to continue making those debt payments.
(For Clients) That’s why we’ve preached against over-allocation to small-cap companies since 2021 as interest rates spiked and we knew the interest rates small-cap companies would pay would be higher than large-cap companies. It’s also why in our Extended ETF series that many of our clients have in their portfolios, we’ve reduced the small-cap allocation to 5% and the ETF we’ve employed is one that focuses on profitable small-cap companies.
So this Shocktober, do whatever is you need to do to steel yourselves from the things that go bump in the market. Give us a call and let us assure you that the scary shadow outside your window … is just a tree branch blowing in the wind …
Frighteningly Yours,
The WTA Investment Committee
Source:
- Yahoo Finance: https://finance.yahoo.com/quote/%5ESPX/
- The Kobeissi Letter, X, @KobeissiLetter
