The Daily Update - A Scary Month For Global Equities

October looks set to become the worst performing month for global equities in over 6 years, and down -8% at present this could be the worst month for the S&P 500 in 8.5 years. Even the market adage, “Nobody ever got fired for buying IBM" looks questionable after the company lost a quarter of its value in October, having only just held its value over the first 3 quarters: vastly underperforming the tech sector.

If IBM is anything to go by, buybacks and acquisitions look increasingly unreliable as a way to conjure up investor sentiment and added value. This month’s announcements to buy back up to $4bn of its stock and to purchase Red Hat for $34bn only helped IBM take the lead in terms of negative performance that hit the tech sector. In the last couple of days all three major rating agencies have put the company on negative outlook with S&P and Fitch also downgrading their rating one notch from A+ to A.

Not unusual in a down month, but nearly 400 of the 505 stocks in the S&P will have negative performance this October. However, what has been really unsettling is the breadth of almost 200 companies in the Index that suffered declines in excess of -10%, with 1 in 10 companies down at least -19% this month. Moreover even with these declines the average PE ratio for the Index has only fallen from an average of 23 in the first three quarters to 22; this is back in-line with the average from the past 5 years. The intraday peak-to-trough, from 21 September to 29 October, exceeding -10% and valuations moving back in-line to 5-year averages are both clear markers of a correction. But moving past the month of October and Halloween there are still plenty trade war tricks and geopolitical treats that could give markets another scare.

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