Navigating a Turbulent Q3: What This Means for You
Discover how Veritable is preparing for Q4 in today’s turbulent markets.
On averages and exceptions
When planning for the future, averages can be deceptive. Investor Howard Marks tells the story of the 6-foot-tall man who drowned crossing a stream that was 5 feet deep on average. The stock market has a long-term average annual return of 7.7% for U.S. stocks, but any given year’s return is likely far from average[i]. In fact, over the last 210 years, returns have only landed between 0% and 10% one-quarter of the time. What does this mean for you? Successful financial planning requires strategies that prepare for a wide range of outcomes, not just the average.
August and September’s markets
Historically, August is a quiet month in the markets, with an average global return of 0.0% over the past 24 years[ii]. But this August was anything but predictable. In the first week, negative news and weak economic data pushed stocks down quickly, with Japanese markets falling 20%. Then, before panicked analysis could settle, a wave of positive economic data reversed the decline. For day-to-day watchers, it was a rollercoaster; for month-to-month observers, August was almost as uneventful as history predicted.
Then came September, which has traditionally been the worst month for stocks, with a 24-year average global return of -1.5%[iii]. But this September defied expectations. Gaining confidence that inflation is under control, the US Federal Reserve joined Canada and other central banks by cutting rates. Equity investors grew optimistic about inflation control, lifting stocks to positive returns.
What does this mean at Veritable Wealth
We understand that times get volatile and markets get difficult. This is why our investment approach focuses on long-term growth opportunities rather than reacting to short-term market fluctuations and relying on averages.
Creating opportunity: Sogo Medical
During the COVID-19 lockdowns, our private equity partner identified potential in Sogo Medical, a leading owner of pharmacies in Japan. As a public company, Sogo was restricted in its ability to invest for long-term growth. Our investment, alongside a specialist Japanese investor and strong management team, took Sogo private and provided the resources and time necessary to expand its presence in hospitals, launch new digital initiatives, and open new pharmacies. Earlier this year, after four years of private ownership, Sogo was sold at 2.2 times the original price.
Investing in essential infrastructure: Spirit Aerosystems
In a similar case, our specialized credit managers spotted an opportunity in the bonds of Spirit Aerosystems, a critical supplier of aircraft components to Boeing, Airbus, and Bombardier. Airlines are notoriously known for being boom and bust businesses and production slowdowns were creating stress at Spirit. But air travel is vital to economic growth, demand for new planes is high, and switching long term suppliers in a heavily regulated and capital-intensive industry is near impossible. Less than two years later, Spirit’s bond value rose substantially when Boeing announced a deal to buy Spirit. From the relative safety of a bond, the investment earned the type of outsized returns only available to those who think differently.
Looking ahead
With the U.S. Presidential election this week and Canadians voting in 2025, markets will likely see short-term fluctuations. Yet history shows that post-election market performance is typically similar to any other quarter, as markets quickly move on from politics to reflect broader economic conditions. But elections are about more than investing. Regardless of if your preferred candidate wins or loses, we must choose to remain informed and engaged. Awareness makes the world feel a bit less uncertain, and knowledge will help you move forward with confidence.
If you’d like to discuss how to navigate decisions for your portfolio, feel free to reach out for a consultation.
All the best,
Douglas Schein
Chief Investment Officer, Veritable Wealth Advisory
Veritable Investment Management is a trade name of Aligned Capital Partners Inc. (ACPI). ACPI is regulated by the Canadian Investment Regulatory Organization (www.ciro.ca) and a Member of the Canadian Investor Protection Fund (www.cipf.ca).Douglas Schein is registered to advise in securities to clients in Ontario.This publication is for informational purposes only and shall not be construed to constitute any form of investment advice. The views expressed are those of the author and may not necessarily be those of ACPI. Information has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made by ACPI, its affiliates or any other person as to its accuracy, completeness, or correctness. All opinions expressed are as of the date of this publication and are subject to change without notice. Content is prepared for general circulation and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. You should not act or reply on the information without seeking the advice of the appropriate professional. Products or services referenced may not be suitable for you, and it is recommended that you consult your financial advisor if you are in doubt about the suitability of such investments or services.
[i] Annual returns from US stocks 1815 to 1925 - International Center for Finance, Yale University, Journal of Financial Markets. Returns from 1926 to 1956 - S&P Composite Index, and 1956 to 2023, on the S&P 500, Slickcharts.
[ii] Historical monthly returns - MSCI World Net Total Return CAD Index, from the London Stock Exchange Group
[iii] Historical monthly returns - MSCI World Net Total Return CAD Index, from the London Stock Exchange Group