Lexicon Financial Group Weekly Update — November 12, 2025
“As a rule, panics do not destroy capital; they merely reveal the extent to which it has been destroyed by its betrayal into hopelessly unproductive works.”
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
ISSUE 204
Looking Around
Howard Marks wrote an interesting piece entitled “Cockroaches in the Coal Mine.” And he raised an important point.
“Security prices fluctuate much more than do the intrinsic value and prospects of the underlying companies, and the main reason for this is the extreme volatility in the way people feel about risk.”
According to Marks, when the economy is humming along -- companies reporting growing earnings, stock prices are rising and profits are increasing, people (aka investors) will say that risk is their friend. The investor approach is, “The more risk I take, the more money I will make.” These good times heighten positive news (even if it is ambiguous) and downplay negative news. Moreover, the longer the good times last, the more the possibility of loss recedes. Risk (or at least the memory of risk) recedes into the distance, allowing FOMO (fear of missing out) to become more important.
But the downside of risk is always lurking. When good times turn bad, corporate profits fall and markets decline. As investors lose money, they look at bearing more risk as just a way to lose more money and want out. The treatment of negative and positive news is reversed. Investors regret their actions during the bull market, as they are reminded that there is something worse than missing out on potential gains. This is more the norm than the exception when it comes to financial markets. The recurring roller coaster of investor psychology and risk tolerance, coupled with the resulting behaviour, is an important factor here. History, according to Mark Twain, does not repeat itself, rather, it rhymes.
The cockroaches that inspired Marks are recent bankruptcy filings by First Brands, an auto parts supplier, and Tricolor, a seller of and a subprime lender against used cars. This reference arose from the comments made about these companies by the Chairman and CEO of JPMorgan Chase, Jamie Dimon, in which he described them as cockroaches and that if you see one, there are probably more. Marks believes that what has happened with these companies is systematic and not systemic. In other words, this is not part of the financial system but rather a regularly recurring behavioural phenomenon. Bullish conditions in good times usually lead to a lowering of lending standards and diligence, which gives rise to more defaults and occasional fraud.
Marks believes that in investment research, conclusions aren’t always compellingly obvious, but are built up, over time, into a mosaic of individual snippets of information that learn towards a conclusion based on evidence. (1)
Just because there is one cockroach does not necessarily mean that there are more. You can wait for them to appear and then try and exterminate them, or you could diligently keep a clean home, ensuring the problem does not occur in the first instance. Sometimes, this means balancing the euphoria that comes from positive markets with the suffering felt in down markets. A disciplined approach is always the best way forward.
Read and Watch
Want deeper insight into topics in your Weekly Update? Then, read and/or right click:
Earnings, jobs data help lift S&P/TSX composite, U.S. markets post mixed results
Private reports suggest US labor market weakened in October
European Economic Outlook: Trade Deal Eases Uncertainty but Growth Remains Fragile
Japan: Sustaining Growth and Stability Amid External Uncertainty
Looking Back
The S&P/TSX Composite Index (TSX) ended last week down 1.15 per cent – its second straight weekly decline. This despite Canada's economy adding 66,600 jobs in October (beating expectations for a decline of 2,500) and the unemployment rate dropping to 6.9 per cent from 7.1 per cent.
Canada's budget, last Tuesday, forecast that the fiscal deficit will more than double this year, but much of the additional spending was focused on measures to raise economic productivity rather than boosting demand. In terms of sectors, the materials sector, which includes metal mining shares, rose 1.4 per cent as the price of gold increased, while the utilities sector rose 0.9 per cent. However, the technology sector fell 2.6 per cent and real estate fell 0.7 per cent, as some companies earnings missed estimates. (2)
Major stock markets in the United States (U.S.) finished last week lower, as concerns regarding elevated valuations and increased scrutiny around artificial intelligence (AI) spending weighed on many of the growth-oriented stocks that have driven indexes’ rapid rise since early April. The U.S. federal government shutdown reached the longest on record during last week and appeared to also weigh upon broader investor sentiment. This was not helped by rising concerns about the continuing lack of government data and the growing potential impact of the shutdown on gross domestic product (GDP) growth.
With the ongoing shutdown continuing to limit government data releases, investors focused on several employment reports from alternative private-sector sources. These included ADP’s October employment report, which noted that private employers added 42,000 jobs during the month, rebounding after two consecutive months of declines. However, the report also noted that hiring was not broad-based as employers in the professional business services, information, and leisure and hospitality industries shed jobs for the third month in a row, while pay growth was unchanged. Another report released last Thursday by the consulting firm Challenger, Gray & Christmas indicated that employers have cut nearly 1.1 million jobs this year through October - a 65 per cent increase over the same period last year and a 44 per cent jump from the number of job cuts in the entirety of 2024. October’s 153,074 job cuts were the most for the month since 2003.
All of this has impacted consumer sentiment in the U.S. The preliminary reading of University of Michigan’s November Index of Consumer Sentiment revealed a drop of 3.3 points month over month to 50.3. This is the lowest since the index’s record low in June 2022 and was led by a 17 per cent drop in current personal finances and a 11 per cent decline in year-ahead expected business conditions. Federal government shutdown worries were cited as a primary reason for the decline. Expectations for inflation over the next year rose to 4.7 from 4.6 per cent in October.
Like other major stock markets in the European Union (E.U.), the pan-European STOXX Europe 600 Index ended lower last week – 1.24 per cent lower. Rising concerns about overvaluation in AI-related stocks weighed on sentiment. Retail sales in the euro area fell 0.1 per cent in September, which marked a third consecutive month of contraction, missing a consensus forecast for a 0.3 per cent gain in a FactSet poll of analysts. Year over year, growth in retail trade slowed to 1.0 from 1.6 per cent in August.
Stock markets declined in Japan. The shares of AI-related technology and heavyweight chip companies drove most of the recent gains, so some investors questioned the sustainability of the rally and sought to lock in profits. New Prime Minister Sanae Takaichi emphasized that Japan has still not achieved sustainable and stable price growth backed by solid wage gains. She said that her government will deploy fiscal spending to boost household incomes, consumer sentiment, and the economy. A draft of an economic stimulus package is expected later this month.
Surprisingly, mainland Chinese stock markets edged higher last week, as easing U.S.-China trade tensions boosted risk appetite. Investor sentiment improved after the U.S. and China reached a one-year truce in their trade fight, after the presidents of both countries met the prior week at the Asia-Pacific Economic Cooperation (APEC) summit in South Korea. However, beyond the upbeat tone of this landmark meeting, the summit appeared to offer few specifics. Rather, the key takeaway for investors is a pronounced sense of pragmatism that prevailed at the APEC meeting, in which countries are adapting to an evolving world, trading where they can, and hedging where they have to. (3)
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.
Memos from Howard Marks: Cockroaches in the Coal Mine, Brookfield Oaktree Wealth Solutions, November 6, 2025
TSX posts second straight weekly decline as investor caution grows, Pranav Kashyap and Fergal Smith, Reuters, November 7, 2025
Global markets weekly update - U.S. consumer sentiment nears record low, T. Rowe Price, November 7, 2025
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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:
The Investing Risk You Might Be Overlooking When Buying Popular Stocks
Understanding Investor Behavior
‘Cockroach’ fears overblown after Tricolor and First Brands fallout