Lexicon Financial Group Weekly Update — November 27, 2024
“The history of markets is one of overreaction in both directions.”
From the desk of Craig Swistun, CIM, MFA-P, Portfolio Manager, Raymond James Investment Counsel, and Wayne Hendry, Client Relationship Manager, Raymond James Investment Counsel
Looking Around
“How do you determine the topic for your weekly updates?” That’s a question we get regularly. We wouldn’t say someone asks us daily, but often enough.
Generally, topics come from conversations we have with clients. If one person we know has a question, it’s highly likely that someone else has the same question. So, we do our best to answer it. Sometimes, we try to guess what questions people might have before they ask. Are we always successful? We will let you be the judge! We recall one weekly update from a few years ago that was a little bit “out there,” even for us… but we digress.
This week, we are going to jump in the Wayback Machine with Rocky and Bullwinkle (apologies to any younger readers) and look at the history of investments.
The Code of Hammurabi, written around 1700 BCE in what is today Iraq, included the first known framework for investing. It established a way to pledge land as collateral when investing in a project. Modern-day investing has its roots in the 1600s when shipping was big business. British, Dutch, and French ships regularly sailed to the East Indies and Asia and brought back goods from spices to silk.
These voyages were not without risk, so ship owners looked for investors to fund the voyage and receive a percentage of the proceeds if the trip was successful. To spread risk, investors would put their money into several different voyages. If you think this sounds like diversification—you’re right.
This gave rise to the formation of shipping companies which allowed investors to purchase stocks and benefit from returns across all the voyages a company undertook as well as spread risk. Many of these “East India” companies benefited from royal charters that limited competition and generated significant profits. At this point, stocks were a physical piece of paper that could be bought and sold. However, not having a stock exchange, finding a buyer could be difficult. Brokers congregating in coffee shops to facilitate trades emerged, which ultimately evolved into what we know as a modern stock exchange.
The Amsterdam Stock Exchange (now known as “Euronext Amsterdam”) is often regarded as the predecessor to the stock exchanges. It was started in 1602. Clearly, much has changed in the last 400 years, but the basic reason for stock exchanges continues to be connecting investors with investment opportunities. (1)
Industrial revolutions resulted in greater prosperity and developments make it easier for individuals to save and invest. Advanced banking systems evolved. Most of the established banks that dominate the investing world began in the 1800s, including Goldman Sachs and J.P. Morgan.
The second half of the 20th century saw the introduction of new investment vehicles such as hedge funds, private equity, venture capital, real estate investment trusts (REITs) and exchange traded funds (ETFs). In the 1990s, the rapid spread of the Internet made online trading and research capabilities accessible to the general public, which completed the democratization of investing that had begun more than a century ago.
And now we’re here, in the 21st century. We’ve seen dotcom bubbles that created a new generation of millionaires from investments in technology-driven and online business stocks. We’ve seen recessions (2007-2009), fueled by mortgage-backed securities, cripple economies around the world. At the same time, the world of investing opened up to even more through the advent of discount online investment companies and trading apps. (2)
Investing remains the act of distributing resources into something to generate income or gain profits over time. By its very nature, it exposes your capital to risk. Our role? To make sure you understand these risks and balance them against your objectives. Because your personal objectives are what write your personal history.
Read and Watch
Want deeper insight into topics in your Weekly Update? Then, read and/or right click:
Looking Back
In Canada, the S&P/TSX composite index (TSE) ended last week on a positive note, extending its record-setting run as industrial shares climbed and investors cheered upbeat domestic retail sales data. For the week, the TSE was up 2.2 per cent - its third consecutive weekly gain. Just three of the 10 major TSX sectors ended lower, including technology. Canadian retail sales rose 0.4 per cent in September from August, as consumers spent more at grocery stores and supermarkets, while preliminary data showed an October gain of 0.7 per cent. Worth noting here is the proposal by the Canadian government for $6.3 billion in new spending measures to help consumers deal with high prices. (3)
Major markets in the United States (U.S.) finished the week higher, recovering some of the previous week’s losses. This, despite some continuing uncertainty around the incoming Trump administration’s policies and escalating geopolitical tensions stemming from the conflict between Russia and Ukraine. Gains for the week were also relatively broad-based and the price of Bitcoin continued its post-election rally by notching its third consecutive week with a gain exceeding 10 per cent.
On Thursday, the Department of Labor reported an unexpected drop in initial jobless claims for the week ended November 16, 2024. Applications for unemployment benefits fell to 213,000, a decline of 6,000 from the prior week and the lowest number since April 2024. This seemed to help drive positive investor sentiment towards the end of the week. Investors seemed to be further encouraged by the National Association of Realtors’ report of existing home sales in October, which rose year over year for the first time since July 2021. The upbeat report cited additional job gains, continued economic growth, and stabilizing mortgage rates as factors leading to the growth in housing demand. U.S. Treasuries posted positive returns last week as short-term yields increased from the prior week, while long-term yields decreased. Bond prices and yields, as you know, move in opposite directions.
The pan-European STOXX Europe 600 Index ended higher last week on hopes that the European Central Bank (ECB) could lower borrowing costs in December after purchasing managers’ surveys signaled a deterioration in the economic outlook. However, other major indices mostly fell. Japan’s government approved an economic package last Friday, to ease the pain of inflation on households and businesses and to revitalize struggling regional economies. Combined with expected spending from the private sector, the package is estimated to add JPY 39 trillion (USD 250 billion) to the economy.
Chinese stock markets declined as a light economic calendar and concerns about the incoming Trump administration dampened investor appetite for risk. The Chinese government has signaled further easing measures in the near term, including potentially cutting the reserve requirement ratio for domestic banks. However, some analysts believe that Chinese policymakers will wait until President-elect Donald Trump takes office in January and U.S. economic and trade policies become clearer. For now, China appears to be unwilling to front-run any move on tariffs and is keeping its powder dry for 2025. (4)
The opinions expressed are those of Craig Swistun and not necessarily those of Raymond James Investment Counsel which is a subsidiary of Raymond James Ltd. Statistics and factual data and other information presented are from sources believed to be reliable, but their accuracy cannot be guaranteed. It is furnished on the basis and understanding that Raymond James is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Raymond James advisors are not tax advisors, and we recommend that clients seek independent advice from a professional advisor on tax-related matters.
The history of investing and what you can learn from the past, Cutter & Co., June 2021
Investing Explained: Types of Investments and How to Get Started, Elvis Picardo, Investopedia, July 19, 2024
Industrials help lift TSX to another record high close, The Globe and Mail, November 22, 2024
Global markets weekly update, T. Rowe Price, November 22, 2024
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Looking to Learn?
If you want to know more about some of the topics we wrote about this week, just click on the links below:
Risk: What It Means in Investing, How to Measure and Manage It