The Week Ahead (13-17 Oct): Timing the crash, US banks, BYIT, SDG, BWY

Welcome to the week ahead. It’s looking like US news could dominate the headlines next week, as a Trump-brokered peace deal in Gaza seemingly comes closer and the US Federal shutdown rolls into its third week.

Company news may also be led by transatlantic firms, as it’s US bank earnings week. Many of the world’s largest banks are due to update the market on recent trading. At least some of their high-profile leaders will no doubt also share their latest view on the state of the world.

The long-serving head of the largest bank of them all, JPMorgan Chase & Co (NYQ:JPM), has already been making waves. On a visit to the UK this week, Jamie Dimon told the BBC he was “far more worried than others” about the risk of a serious stock market crash. However, he admitted the timing of such an event remained uncertain, suggesting a likely range of six months to two years.

This is always the problem with stock market crashes. We can often see them coming. But when even the head of JPMorgan needs an 18-month window to forecast a crash, us mere mortals are unlikely to do much better.

That’s one reason why I’m a big believer in the adage that it’s time in the market that counts, not timing the market. My personal policy is generally to remain largely invested in the market at all times, just keeping a little cash on the side in case bargain buying opportunities arise.

I believe this approach is likely to give me better returns than market timing over the course of my investing life. But perhaps more importantly, I suspect that if I tried to stay in cash so I could take full advantage of major crashes, I’d probably never invest any money at all. Only by being involved and staying invested do I have a feel for conditions, familiarity with companies and the confidence needed to buy when sentiment is poor.

Discussing AI - perhaps the most likely cause of the next crash - Dimon said “AI in total will pay off”, but warned that as with other historic innovations like the car, many individual investors and companies are likely to lose money along the way.

I think that’s a pragmatic and realistic way to look at things. It certainly reflects the eventual outcome of the TMT boom at the turn of the century. Arguably, this might also be a sound way of looking at cryptocurrencies, although personally I’m not entirely convinced.

UK company news

Company news on this side of the pond looks likely to be relatively quiet next week, but there are a few interesting updates that I’ll be watching out for.

Bytes Technology (LON:BYIT)

Continuing the theme of AI, IT resellers such as Bytes Technology believe they should benefit from structural demand in areas such as AI, cloud computing and cyber security. For UK market leader Computacenter (disc: I hold) that’s certainly proving true at the moment thanks to a growing North American operation.

I’m slightly less convinced by the situation at Bytes, though. The company issued a profit warning in July and September’s half-year update was conspicuously lacking in full-year guidance, instead warning of “tough comparatives” for H2.

I will be interested to see next week’s half-year results from Bytes and will hope for a more confident outlook from CEO Sam Mudd – in principle, I think this looks like a decent business, with extremely strong quality metrics and a decent record of growth.

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Bellway (LON:BWY)

Elsewhere next week, I think results from FTSE 250 housebuilder Bellway could be worth a look. I see this as one of the better quality businesses in this sector, with a long track record and a very experienced CEO.

Bellway’s full-year update in August flagged up completions that were slightly ahead of expectations.

Management also emphasised the company’s focus on improving return on capital employed “to drive higher cash generation and shareholder returns”. With the stock currently trading slightly below book value, I see this as a potential contrarian choice – a view shared by Stockopedia’s algorithms:

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Sanderson Design (LON:SDG)

Finally, small cap  Sanderson Design is due to report half-year results on Wednesday. 

This stock has fallen sharply from grace over the last couple of years, as demand for its luxury interior design products has weakened:

However, our resident value specialist Mark has noted the stock’s deep discount to tangible book value…

… and took an AMBER/GREEN view on Sanderson’s recent half-year trading update.

This week's accounts should give us the chance for a more in-depth view of H1 performance and the outlook for the next 6-12 months. I think Sanderson could be worth a closer look. Like Mark, my feeling is that the company’s assets have value and its earning power could recover over time.

I hope you enjoy the weekend - here’s a summary of what’s expected next week.

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Economic Calendar

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Companies Reporting