Market Rout
Flash Note;
This week has seen some extraordinary moves in financial markets, with $6 trillion wiped off stockmarkets, which amounts to one and a half FTSE 100s. The VIX, the volatility index that measures fear, jumped 70% yesterday to its highest point in months after the Nasdaq fell 6.4% and the S&P 500 fell 4.4%. More weakness may follow.
The VIX
However, the major indices remain close to all-time highs, and the VIX is far from true crisis levels. Gold appears to be resuming its role as a safe haven, and bonds and quality stocks have been providing shelter. This is a major market rotation not dissimilar to what we saw in March 2000. I will discuss that in more detail next week.
The weakness in technology stocks is widely attributed to the Democratic Sweep in the midterm elections. It has been a likely trigger because they will oppose data centres, but more broadly, the AI economics are under pressure, and that has come home to roost.
The post-election market bounce in non-tech sectors can be somewhat attributed to the fall in oil (and therefore interest rates). The democrats may try to rein in the War in Iran, but Trump is still in charge. The oil market remains unstable and subject to shocks.
The Soda and Whisky portfolios, while not without exception, have proved resilient. I will not be complacent, as it is getting tougher out there. Gold is acting inversely to oil, and with real rates easing back, the odds are that gold has seen the worst, or at least close to the worst.
The star over the past month has been quality stocks. Investors have shunned them since 2021, when interest rates were low, and they have found a bid.
Nasdaq, Gold, Oil, and Quality Stocks
Berkshire Hathaway is making new highs in both Whisky and Soda, while the likes of Unilever (12%), Nestle (17%), and Diageo (20%) are also helping keep the portfolio steady. In Soda, I am comfortable with the positions. Commodities have weighed on performance, but I remain structurally bullish. I will make changes as necessary.
Have a good weekend and leave the panicking to me. That’s my job.
Many thanks,
Charlie Morris
Editor, The Multi-Asset Investor
Led by former HSBC fund manager Charlie Morris, The Multi-Asset Investor is a weekly letter running two model portfolios: Soda (medium risk) and Whisky (medium-to-high risk). Soda is the core of the strategy; Whisky is the growth on top.
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