The S&P 500 recorded its worst April since World War II and, on the final Friday, its worst one-day performance since June 2020. For the Nasdaq, it was the worst one month performance since October 2008.
Steep falls in stocks are perhaps unsurprising against the backdrop of high inflation, increasing interest rates, tumbling consumer confidence and a highly uncertain geopolitical outlook. Indeed, in a recent investor survey from the American Association of Individual Investors (aaii.com) 59% of respondents said they were bearish over a six-month horizon – the worst survey outlook since the midst of the Global Financial Crisis in 2009.
But whilst price is often driven by sentiment, value is driven by the performance of the businesses that lie beneath. And here the story appears, at least for now, to be quite different. To give several examples from businesses held within the Coleman Street Investment funds: RELX, who provide data and analytics to professional service workers and academics, reiterated full year expectations for growth rates in revenue, profit and earnings per share to ‘remain above historical trends’. Smith & Nephew, the world leader in joint replacement for knees, hips and shoulders made an ‘encouraging start to the year’ according to their CEO with sales growth materially higher than in their recent past. Assa Abloy, the Swedish listed lock maker who through brands such as Yale and HID keep your houses and your offices safe, characterised the first quarter as one with ‘very strong organic sales growth and margin improvement’. And Johnson & Johnson, one of the largest healthcare companies in the world reported 7.9% sales growth in what they described as ‘a strong performance across the enterprise’.
It is important to remind ourselves that performance reports are backward looking whilst stock prices are forward looking. However, swings in sentiment and prices often exceed (and occasionally entirely decouple from) business performance both to the upside and the downside – it is in these moments that opportunities exist.
Benjamin Graham, an early mentor of Warren Buffet, once described the stock market as being a voting machine (driven by sentiment) in the short run but a weighing machine (driven by fundamentals) in the long run. We do not profess to be able to predict the direction of voting but we remain comfortable about the prospects of the businesses that we hold as they continue to get on the scales.
James Godrich, Fund Manager
James is the manager of the Coleman Street Investment Service
The value of securities and their income can fall as well as rise. Past performance should not be seen as an indication of future results. All views expressed are those of the author and should not be considered a recommendation or solicitation to buy or sell any products or securities.
