Keeping Score (ii)

After a decade+ of Keeping Score posts, the old page had gotten so big that it took an eon to load. So I’m continuing Keeping Score on a new page.

November 2023

Another good month for the S&P 500, in fact surprisingly so. One might argue that this is partly seasonal, caused by fiscal year-end selling by mutual funds. Maybe, but to me it now looks more like a run-of-the-mill downtrend that began in August came to an end in late October. This would be based on the market’s new-found belief that inflation has begun to decline (therefore interest rates have peaked) and the fact that corporate results are generally coming in better than expected.

Sector performance was as follows:

IT +12.7%

Real estate +12.3%

Consumer discretionary +10.8%

Financials +10.7%

S&P 500 +8.9%

Industrials +8.5%

Materials +8.1%

Communication services +7.8%

Healthcare +5.2%

Utilities +4.5%

Staples +3.7%

Energy -1.7%.

To my mind, the most unusual result came from Energy, which isn’t showing any strength despite uncertainty in the Middle East and the approach of the Northern Hemisphere winter, which usually boosts crude oil prices.

An almost 9% jump in the S&P 500 is also worthy of note. That’s a big number. Defensives like Healthcare, Utilities and Staples also lagged pretty considerably.

Finally, Real estate and Financials, both sectors driven to a considerable degree by changes in bond prices, seem to be suggesting that Wall Street is less concerned than it has been about the damage higher interest rates does to their profits and asset values.

My general sense is that we’re going to be in a sideways market for a while, where +/- earnings surprises will determine performance. The opening weeks of December will give us further evidence about whether this will be the case–and, if not, which way to adjust a portfolio’s risk profile.

October 2023

October was a most peculiar month. Of course, maybe we say this about whatever month we happen to be in. The US, for example, has a new Speaker of the House, about whom the country knows next to nothing, despite the fact that he’s next in line to assume the presidency after Kamila Harris. He appears, however, among other things, to be one of the staunchest supporters of the Trump attempt in 2020 to overthrow the Federal government; to believe in a literal reading of the Bible, although it isn’t clear he’s conversant in any of the languages in which it was written; and to be opposed to medical care for pregnant women under almost all circumstances. Nor do we know how he feels about a possible default of the federal government on sovereign debt later this month.

Then there’s the complex situation in Israel, which has resulted in thousands of deaths so far, with many more possibly in prospect.

So maybe it’s more surprising that the loss the S&P 500 racked up in October is so small, rather than there’s a loss in the first place.

By sector, the S&P played out as follows:

Utilities +1.2%

IT -0.1%

Staples -1.4%

Communication services -2.0%

S&P 500 -2.2%

Financials -2.6%

Real estate -2.9%

Industrials -3.0%

Materials -3.2%

Healthcare -3.3%

Consumer discretionary -4.5%

Energy -6.1%.

What jumps out to me in these returns is what a mixed bag the outperformers are. Two sectors, IT and Communication services, typically shine in up markets and trail the pack when index returns are negative. Yet both sectors delivered index-beating returns last month. Utilities, on the other hand, are as pure a group of defensives as one can get, as are Staples, only a bit less so for US holders, given their large exposure to foreign economies/currencies.

Consumer discretionary took what appears on the surface as an unusually bad drubbing, but the key reason I see is that many managements seem to have read white-hot demand during the pandemic as being more or less normal, and so failed to prepare investors–or the firms they captain–in advance for the slowdown in revenue and profit gains that is now under way. At the same time, Wall Street seems to me to have taken at face value the rosy picture painted by company managements, despite its implausibility. At least, that’s how I read the violence with which trading bots have thrashed the stocks of firms whose actual earnings are falling short of Wall Street, company management-hinted-at, guesses.

September 2023

At one time in the dim past–and at the start of my career as an investor–the really ugly time of the year for stocks began in November and carried through until mid-December. That’s because the most powerful investment organizations back then were banks and insurance companies, whose accounting year ended on New Year’s Eve, and who did their year-end tax selling in November /December.

The passage of the Employment Retirement income Security Act (ERISA) in 1974, the end to fixed (i.e. VERY high) brokerage commissions and the rise of discount brokerage firms like Fidelity created an enormous expansion in the availability of investment advice and a huge drop in costs. The key vehicle individual investors began to use was the mutual fund, whose total assets quickly dwarfed those of banks and insurers.. Mutual funds end their fiscal years, under government mandate, on Halloween. This shifted the bulk of year-end tax selling to September/October.

We may be in the early days of another industry transformation with the rise of the Exchange-Traded Fund (ETF), which has the same fiscal year as the mutual fund but doesn’t have the same tax issues.

In any event, S&P 500 performance by sector for the month of September is as follows:

Energy +2.5%

Healthcare -3.1%

Financials -3.3%

Communication services -3.3%

Staples -4.8%

S&P 500 -4.9%

Materials -5.1%

Utilities -5.8%

Consumer discretionary -6.0%

Industrials -6.1%

IT -6.9%

Real estate -7.8%

Ongoing problems with commercial real estate explain the bottom of the list performance of this sector. The others seem to me to have a mild defensive bias. The S&P 500 results are considerably better than the loss generated in the “normal” September.


Energy +11.3%

Communication services +2.8%

Financials -1.6%

Healthcare -3.1%

S&P 500 -3.7%

Consumer discretionary -5.0%

Materials -5.3%

Industrials -5.6%

IT -5.8%

Staples -6.6%

Real estate -9.7%

Utilities -10.1%

If there is to be a mutual fund selling season this year, and assuming we haven’t seen it already, it has almost no time to get started. The most convincing thing that 3Q performance says to me is that world economies aren’t showing great strength. If they were, Materials and Industrials would be outperformers. Energy, which is normally also a barometer of economic strength, is outperforming, I think, because of OPEC production cuts rather than booming end-user demand.