October, as is often the case, was a challenging month for equities. The prospect of higher US growth and concerns over government debt sent long-term US interest rates to 16-year highs. The surge in rates led to fears that the tightening in financial conditions would increase the downside risks to the economic outlook and increase the possibility of financial market breakdowns. The co-ordinated attacks launched by Hamas into Israel from the Gaza Strip negatively impacted sentiment further. With increased risk aversion, small and mid-cap stocks underperformed. The fund returned -5.2% versus the MSCI Europe Index that fell 3.2.

The tragic events in the Middle East gave rise to concerns that additional countries would be drawn in, resulting in a wider regional conflict. It is difficult to see, though, how any of the regional powers would emerge from a broader conflict in a better position. Our base case therefore is that, like the war in Ukraine, it will eventually become more horrific background noise than something that is going to meaningfully impact financial markets. The outlook for inflation will remain the key determinant of equity market direction. Recent news flow has been encouraging. Inflationary pressures continue to ebb and the Federal Reserve voted unanimously to leave rates unchanged at its latest meeting.

The economic outlook for 2024 has weakened and earnings in cyclical sectors may come under pressure, but financial markets are a discounting mechanism. Small and mid-cap stocks have been in a bear market since 2021 in anticipation of weaker economic growth. However, as investors begin to anticipate the turn in the interest rate cycle, and better economic times ahead, the outlook becomes much brighter. Cyclical stocks consistently return significantly more than defensives in the twelve months after a recession is declared.

UK banks were weaker as results from Natwest led to fears that increased deposit pricing would significantly impact earnings. While there has been some erosion of profitability this is more than reflected in valuations. Both Lloyds and Natwest trade at significant discounts to tangible net assets yet deliver mid-teens returns. Aixtron fell as investors speculated that emerging weakness in the Silicon Carbide market would negatively impact demand for their machines. Puma declined as its third quarter announcement revealed that the acceleration in activity earlier in the summer had not been sustained and that results would merely be in-line with expectations. Cyclical stocks were generally weak.

Alpha Financial Consulting rose as its interim results revealed that improved operational momentum gave it confidence for the full year. Post a previous cautious outlook statement, investors had been concerned that its full year profit guidance was unachievable.

October, as is often the case, was a challenging month for equities. The prospect of higher US growth and concerns over government debt sent long-term US interest rates to 16-year highs. The surge in rates led to fears that the tightening in financial conditions would increase the downside risks to the economic outlook and increase the possibility of financial market breakdowns. The co-ordinated attacks launched by Hamas into Israel from the Gaza Strip negatively impacted sentiment further. With increased risk aversion, small and mid-cap stocks underperformed. The fund returned -5.2% versus the MSCI Europe Index that fell 3.2.

The tragic events in the Middle East gave rise to concerns that additional countries would be drawn in, resulting in a wider regional conflict. It is difficult to see, though, how any of the regional powers would emerge from a broader conflict in a better position. Our base case therefore is that, like the war in Ukraine, it will eventually become more horrific background noise than something that is going to meaningfully impact financial markets. The outlook for inflation will remain the key determinant of equity market direction. Recent news flow has been encouraging. Inflationary pressures continue to ebb and the Federal Reserve voted unanimously to leave rates unchanged at its latest meeting.

The economic outlook for 2024 has weakened and earnings in cyclical sectors may come under pressure, but financial markets are a discounting mechanism. Small and mid-cap stocks have been in a bear market since 2021 in anticipation of weaker economic growth. However, as investors begin to anticipate the turn in the interest rate cycle, and better economic times ahead, the outlook becomes much brighter. Cyclical stocks consistently return significantly more than defensives in the twelve months after a recession is declared.

UK banks were weaker as results from Natwest led to fears that increased deposit pricing would significantly impact earnings. While there has been some erosion of profitability this is more than reflected in valuations. Both Lloyds and Natwest trade at significant discounts to tangible net assets yet deliver mid-teens returns. Aixtron fell as investors speculated that emerging weakness in the Silicon Carbide market would negatively impact demand for their machines. Puma declined as its third quarter announcement revealed that the acceleration in activity earlier in the summer had not been sustained and that results would merely be in-line with expectations. Cyclical stocks were generally weak.

Alpha Financial Consulting rose as its interim results revealed that improved operational momentum gave it confidence for the full year. Post a previous cautious outlook statement, investors had been concerned that its full year profit guidance was unachievable.