October 2023

The main equity markets fell again over the past month. The EuroStoxx 600, the S&P 500 and the Nasdaq gave up -3.6%, -2.2% and -2.8% respectively in October.

Among the factors behind investors’ cautious attitude were the terrorist attacks in Israel on 7 October, which stunned the world with their cruelty. Israel once again found itself in a state of war, and the market was quick to worry that the conflict could escalate out of control as a result of clashes in southern Lebanon with Hezbollah and on the West Bank, missile fire from Yemen and Iran’s threatening rhetoric. A conflagration in the region could trigger an oil shock and a global recession. There is every reason to believe that the conflict will last at least several months and will mainly affect the Israeli economy if it remains contained, which remains our assumption at this stage. 

However, the markets have also been shaken by sudden movements linked to company fundamentals and the economic climate. Lack of liquidity may also be playing a role, but it is difficult to be definitive on this point. Sanofi, for example, informed investors that it would be increasing its R&D budget by 10% in 2024 and was heavily penalised by a 19% fall during the trading day. This was a surprising move for a company of its size in a sector that is usually less sensitive to market shocks.

Generally speaking, most companies disappointed slightly, particularly with regard to their outlook. The economy is clearly weaker than management expected at the end of the summer. We are not seeing any sharp downturns, just marginal disappointments that have been severely punished. Companies that disappointed slightly gave up around -5% on average on the day of their release. Those that surprised positively gained little, and those that reported new and structural problems lost at least -10%, and sometimes much more.

Against this backdrop, we remain cautious to avoid irreparable losses in our portfolios. Stocks that we consider to be at risk have been strictly trimmed, and the Clartan Patrimoine equity portfolio has been reduced to the bare minimum. However, we remain convinced that this bad patch will not last forever and that we are at valuation levels that are attractive to patient investors. They can buy stocks in Europe at an average of 11 times their 2024 earnings, which is historically low.

Clartan funds declined in October: Valeurs and Europe fell by -4.6% and -7.6% respectively, Ethos by -8.0%, Evolution by -3.1% and Patrimoine by -0.1%.