Nine-one and two-third percent of the year has come and gone. As I type these words, we are well into the final month of the year. Taking a moment for a breath, one can’t help but wonder where the year evaporated to. Alas, there’s little time for such philosophical mental gymnastics.
Instead, an observation to kick this month’s insights off. Having invested through the harrowing September and October markets, mired in red ink throughout the market boards, November just proved why, unless one is involved in heavily speculative trading, abandoning ship with a kneejerk reaction is not of much value. Why is thar? Take a moment to peruse page two for some clarity.
Indeed, October’s market script was flipped on its head in November, producing far more green results than red ones, and some quite hearty green ones at that. Fortunate for those who did not press the panic button at the end of October as the world was settling into the latest Middle Eastern fighting.
This leads to an opportune time to review and incorporate an oft used phrase in the investment field – risk-on risk-off. Courtesy of Investopedia:
“Risk-on risk-off is an investment setting in which price behaviour responds to and is driven by changes in investor risk tolerance. Risk-on risk-off refers to changes in investment activity in response to global economic patterns.
“During periods when risk is perceived as low, the risk-on risk-off theory states that investors tend to engage in higher risk investments. When risk is perceived to be high, investors have the tendency to gravitate toward lower-risk investments.”(1.)
That explanation may cause confusion so let’s first clear it up. Using your own intuition, you are more likely to accept and take on more risk (i.e. risk on) when you think there’s lower risk in the matter at hand. But if there’s more risk involved, you are more likely to take off risk (i.e. risk off) and search for less risky alternatives. The same implies to investing.
With that said, what assets generally do better in a risk-on (i.e. low risk) setting? And what about in risk-off (i.e. high risk) market stages?
Risk-on phases are usually highlighted by well performing equity markets. Stocks are perceived as riskier so they see better performance when investors think there is less external risks involved with investing in them. When investors see external risks as uncertain or volatile, they will go risk-off and invest in such assets as bonds and precious metals, producing better performance in such assets.
With this now in mind, review page two again and pray tell me, are we risk-on or risk-off Rising stocks suggest risk-on. But rising precious metals and falling bond yields (i.e. rising bond prices) project risk-off.
Even commodities, generally performing best in risk-on settings, are sending mixed signals. Oil, sugar, lumber, wheat, et al. paint a mixed bag in November. Are we risk-on or risk-off?
How about back to gold, which saw its USD ratio touch an all-time high of 2,095.70 USD toward the end of November? Not to be outdone, the USD price of uranium thrashed its 15-year high this month too, crossing north of 80 USD per pound. The first suggests risk-off while the second points to risk-on.
The risks and opportunities. The economics and politics. The psychology and biases. The statistics and mathematics. All that goes into investing can be mindboggling and no easy feat. It’s why having a money manager in your corner who takes great satisfaction in such work is all the more important. We’re happy to connect with you to discuss how we can bring more stable and intentional growth to your portfolio.
Wishing you and yours the Merriest of Christmas seasons and a new year filled with good health, many successes and memorable adventures!
All My Best,
Adrian Harasymiw Investment Advisor Pinnacle Sovereign Investments of ACPI
P.S. To review the November market numbers or download a PDF copy of this commentary, check out the Monthly Market Pulse page on our website.