Then the annual scary months comment flow began to garner attention, driven by accumulated gains (yes, the rearview mirror), admittedly high pricing and some clearly not especially good news:
The Chinese real estate giant Evergrande looked close to defaulting on the world's largest corporate debt. US politicians once again launched a chicken race towards the brink of debt ceiling defalt. And the ghost of inflation nevertheless pushed long interest rates upward.
The end result was not too scary: Euro spreads were back where they started, US spreads were actually down a bit, and global stocks lost some four per cent. The Chinese real estate quagmire seemed to fade somewhat, at least for now.
What did not quite go away, entering October, was the US political bickering about the budget, the debt ceiling and the fate of President Joe Biden's ambitious stimulus agenda.
We've been here before. Remember the summer of 2011? The Republican party, wanting President Barack Obama to cut spending, refused to lift the debt ceiling until a compromise was finally made on July 31.
The agreement notwithstanding, only five days later, Standard & Poor's downgraded long-term US debt from AAA to AA+. The very next day, S&P 500 fell by almost 7 per cent, completing a total decline of 17 per cent in just a couple of weeks.
Scary? Assuming you had the guts to stay put, your S&P 500 investment would have produced a gross return of 373%, meaning a compound return of impressive 16,5%.
In my view, considering the present situation, it is extremely unlikely that a compromise is not made. It would not only be unbelievably reckless; it would be downright stupid.
If, on the other hand, news of tough negotiations and rumours of an irresolvable stalemate send shivers down Wall Street, perhaps that might not be such a bad turn of events for a decidedly long—term investor?
Finn Øystein Bergh
Chief Economist & Strategist
Historical returns are no guarantee for future returns. Future returns will depend, inter alia, on, market developments, the portfolio manager’s skill, the fund’s risk profile, as well as fees for subscription, management and redemption. Returns may become negative as a result of negative price developments. This is marketing communication.