Market Quote: Volatility, U.S. Bank Earnings and Seasonality
Author: The editor's desk
October 20, 2023
Members of AGF’s Investment Management Team weigh in on the week that was in global financial markets.
Buckle up
“Whether it’s individual stocks or equity indexes more broadly, trading continues to be impacted by a heightened level of volatility this week. In addition to ongoing monetary policy concerns, reasons for this turbulence include growing headline risk from a number of powder keg issues including the wars in the Middle East and Ukraine. Also at play is the standstill in Washington to find a new speaker of the U.S. House of Representatives, which is preventing lawmakers from bringing in new legislation and could lead to a government shutdown next month if a new funding deal can’t be completed by then. Moreover, the beginning of another U.S. earnings season is causing large price fluctuations in some individual securities that have already reported third quarter results and there could be more of this to come in the days ahead.”
‘Tis the season
“The current volatility in equity markets shouldn’t come as a surprise to investors that know seasonal tendencies. After all, October has a reputation for being one of the more volatile and difficult months of the year, largely because it coincides with some of the biggest selloffs in history, including the Great Depression in 1929 and Black Monday in 1987. Tax loss selling – especially among U.S. institutional investors – is also prevalent this time of year and may be contributing to some of the softness being experienced. Even so, investors should find consolation in the fact that seasonal trends tend to improve near the end of October and into the final two months of the year. If this happens again, long-term investors, in particular, may want to ‘sharpen their pencils’ in anticipation of markets taking another potential run at surpassing year-to-date highs.”
Bigger continues to be better
“U.S. bank earnings kicked off the third quarter earnings season in the U.S. and, so far, results have been solid but uninspiring. The vast majority of names have beat consensus estimates, but largely because of better credit metrics. Loan growth has sputtered and the level of deposits continues to decline as customers seek higher yielding alternatives. Given this backdrop, the largest U.S. banks indicated that they are currently ‘over-earning’ on net interest income and foresee paying more for deposits as customer savings rates decline, and consumer spending and loan demand softens. While the largest U.S. banks still enjoy an excess of deposits, the smaller regional players have had to seek out alternative funding sources in the wake of the bank failures this past March. While we continue to believe there is no systemic risk presenting itself at this time, clearly the smaller regional players’ performance will continue to be constrained by higher funding costs, continued capital building and softer loan demand conditions.”
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The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds, or investment strategies.
Commentary and data sourced from Bloomberg, Reuters and company reports unless otherwise noted. The commentaries contained herein are provided as a general source of information based on information available as of October 19, 2023 and are not intended to be comprehensive investment advice applicable to the circumstances of the individual. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however, accuracy cannot be guaranteed. Market conditions may change and AGF Investments accepts no responsibility for individual investment decisions arising from the use or reliance on the information contained here.
This document may contain forward-looking information that reflects our current expectations or forecasts of future events. Forward-looking information is inherently subject to, among other things, risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed herein.
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Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. Our companies deliver excellence in investing in the public and private markets through three business lines: AGF Investments, AGF Capital Partners and AGF Private Wealth.
AGF brings a disciplined approach, focused on incorporating sound, responsible and sustainable corporate practices. The firm’s collective investment expertise, driven by its fundamental, quantitative and private investing capabilities, extends globally to a wide range of clients, from financial advisors and their clients to high-net worth and institutional investors including pension plans, corporate plans, sovereign wealth funds, endowments and foundations.
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