The Market Has Changed - So Has My Strategy

This week’s update at a glance

• I’ve refined how we prioritise portfolio opportunities. This is a change in emphasis, not an abandonment of the investment principles that have served us well.
• Market rotation is creating conflicting signals. Semiconductor stocks fell sharply even while leading AI suppliers reported robust business results. The selling does not, by itself, establish a collapse in AI demand.
• History is encouraging, but the journey matters. October and US midterm-election patterns favour positive outcomes in the historical samples I discuss, yet some of those periods contained substantial drawdowns.
• Portfolio structure is the practical priority. Quality, probability of success, weightings, money flows and an adaptable plan matter more than trying to forecast the next market move.

What you’ll learn

• Why strong corporate fundamentals and falling share prices can coexist for a time.
• What recent differences between the major indices reveal about market rotation.
• What the historical October and midterm-election figures do — and do not — tell us about risk.
• How we have changed the presentation of our model portfolios to put sustainable quality and probability of success first.

The thinking shift

The market has been difficult to read for months, and recent trading has made it even more important to separate business quality from short-term share price movement. I cannot tell you whether the current rotation has another week or another quarter to run, and I have no intention of guessing.

What I can do is refine how we help members use the opportunities in our model portfolios. Rather than presenting them primarily by sector or industry group, we have reorganised them around sustainable quality, the probability of success and the potential reward relative to risk. The underlying principles remain: find outstanding businesses, wait for money-flow confirmation and manage risk through appropriate entries, exits and position sizes.

Why this market is demanding more

Last week’s technology-led sell-off was a sharp repricing of risk. Semiconductors fell heavily, yet results from Taiwan Semiconductor and ASML were outstanding, and the broader evidence of AI demand remained strong. That contrast is central to this update: a falling share price is not automatically evidence that the underlying business has deteriorated.

That does not mean the technical damage can be ignored. Hotter inflation readings, financing questions in parts of the AI sector and shifting capital flows can keep pressure on valuations. There was also a clear difference between the market-cap-weighted US indices and the equal-weight S&P 500. Investors who only follow the headline index can miss what is happening beneath the surface.

The historical odds — and their limits

October has a reputation for crashes, but the data I present since 1950 shows the month finishing higher around 60% of the time, with an average S&P 500 price return of approximately 0.9%. A positive historical average is not the same thing as a low-risk month.

I also look at the October-to-June period around US midterm elections. In the 19 completed cycles in the historical series presented, the index finished higher each time. That is a striking observation, not a guarantee that the next cycle will behave the same way. One of those periods saw a fall of approximately 19% before ultimately finishing modestly positive. Investors still need a plan for the journey, not just an opinion about the destination.

Where I’m focused now

• Sustainable quality: Businesses with a robust outlook and a stronger probability of delivering it, rather than simply an exciting story.
• Appropriate weightings: We are encouraging members to consider allocating at least half of their portfolios to our highest-probability category, while recognising that the right structure depends on each person’s needs and tolerance for volatility.
• Money-flow confirmation: Excellent fundamentals do not always translate immediately into rising prices. Entry timing and the balance between buyers and sellers still matter.
• Cash and discipline: Keep enough flexibility for opportunities, and avoid allowing market headlines or emotions to force decisions that conflict with your longer-term plan.

I believe the next few months may present significant opportunities, but also substantial volatility. The aim is not to predict every twist and turn. It is to build a portfolio you understand and can manage with confidence when markets become uncomfortable.

Important information

_{Any advice in this video is general advice only. Neither your personal objectives, financial situation or needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice. Garry Davis (AR No:317590) is an authorised representative of Primary Securities Ltd (AFSL No. 224107).}

_{Note to traders* The publishers of this article/information/promotion wish to disclose that they may hold stocks mentioned in their portfolios and that any decision to purchase those stocks should be made only after the purchaser has made their own enquiries as to the validity of any information in this article/information/promotion.}

_{Past performance should not be taken as an indicator of future returns. Trading and investing in financial markets involves risk of losing money.}

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