Markets remained jittery in October as ongoing conflict, rising oil prices and uncertainty over AI resulted in most equity markets posting negative returns for the month.
Emerging markets and AI-related stocks were especially volatile, with Nvidia, Alphabet and Meta all declining more than 10%. In Brazil, a surprise election win for the left-leaning Luiz Inácio Lula da Silva – known simply as Lula – resulted in a sharp downturn in the Brazilian equity market. The Bovespa index, which tracks Brazilian stocks, slumped nearly 14% on the day of the result.
Meanwhile France is also undergoing turmoil as the outbreak of large-scale riots in the capital has amplified the existing uncertainty over the country’s rising debt and next year’s election. The French equity market was relatively resilient during the month as the CAC index rose 0.1%. However French government bonds remained volatile as the 10 year yield surpassed 5% for the first time since 2002.
In the UK, Chancellor John Healey delivered the first Budget under Prime Minister Andy Burnham. With no major surprising announcements, both the UK equity market and UK gilt yields were relatively unmoved on the day. In early October the 30 year gilt-yield surpassed 6% for the first time since 1998 but by the end of the month it had slipped back to 5.71%.
Full round-up of October market performance
In the UK, the FTSE 100 index gained 1.29% while medium and smaller companies, measured by the FTSE 250 ex IT index and the FTSE Small Cap ex IT index respectively, rose 1.13% and 1.11%. In the US, the S&P 500 USD index slipped 0.87% while in Europe the Eurostoxx 50 EUR index fell 2.07%. Japanese stocks measured by the Topix JPY index declined 3.48%.
Emerging markets were negative as the MSCI Emerging Markets index slumped 7.44% in local currency terms. Chinese equities measured by the MSCI China CNY index dropped 7.15% while Latin American equities measured by the MSCI Latin America local currency index lost 4.30%. However Indian stocks measured by the Nifty 50 index picked up 1.91%.
In the fixed income market, UK government bonds, measured by the FTSE Gilts All Stocks index, climbed 1.54% with long dated (over 15 years to maturity) gilts rising 3.74%. Sterling denominated corporate bonds, measured by the Markit iBoxx Sterling Corporates index, went up 0.46%. However, in the high yield market, the ICE Bank of America Sterling High Yield index decreased 3.36%.
In the commodities market, the S&P GSCI USD index, which consists of a basket of commodities including oil, metals and agricultural items, jumped 4.80%. Brent crude oil futures soared 15.15% during the month. In the precious metals markets, the S&P GSCI Gold and Silver indices shed 6.55% and 18.36% in USD respectively, while in the agricultural markets corn and wheat futures fell 10.58% and 10.69% in USD respectively.
In currency markets, it was a mostly positive month for the pound as it appreciated 0.95% versus the US dollar, 2.49% against the euro and 1.05% versus the Japanese yen.
Leo Hallam (Head of Marketing)
Head of Asset Management and Fund Manager James Timpson is here to tell us what’s happened in markets throughout October, but not before I ask, James, how did the markets react to the US midterms?
James Timpson (Head of Asset Management & Fund Manager)
Overnight we saw the US midterm election results come in and it was a pretty resounding win for the Democrats. So they’ve taken control of both the House and the Senate.
The market reaction as the results were coming in. Well it was quite volatile overnight. So the tech heavy Asian indices such as the Nikkei index and the KOSPI Korean index, they were down quite heavily at one point overnight. Actually they closed the session. Certainly the KOSPI index at least that closed the session positive. And coming in this morning looking at European market opens, the UK, France and Germany.
They’ve all opened up about half a percent this morning so apart from some immediate volatility overnight, the overall initial reaction was actually fairly sedate. Well time’s proven that the next president’s not based on the results of the US midterms. Interesting to hear that they settled.
Leo Hallam
Thanks, James. Now it’s been a jittery October. Yep. So overall market return in October was slightly negative.
James Timpson
So the MSCI World index that was down just under 1% for the month. And this is for a lot of the usual reasons that we’ve been seeing recently. So the ongoing conflict in the Middle East and rising oil prices as well. So in the last month, oil price has gone right back over $100 per barrel peaked just under $120 I think, so markets are still reacting to oil price movements.
It’s not been such a good month for the big tech stocks. No. So stocks such as Nvidia, Alphabet and Meta, they were each down more than 10% last month. Any idea why? Really it’s just continued uncertainty over where we’re going with AI and the fact that these stocks have become so overvalued over the last few years that a correction almost seems inevitable.
And actually, a lot of the volatility we saw overnight with the midterm elections was because of those AI stocks in the Asian market. And because, you know, obviously the future of AI is going to be largely dependent of who’s in power in the US. But not all markets were down quite so heavily last month. The FTSE 100 for instance, was actually positive for the month, over 1%, possibly partly due to, the rising oil prices.
You’ve got those big oil companies in the FTSE 100. But actually, having said that, mid caps and small caps in the UK were also positive for the month. So the FTSE 250 index and FTSE SmallCap index. They were positive too. And as you touched on in the reaction video to the budget, markets barely moved at all to that budget. It was you did well to get 12 minutes out of it frankly.
Leo Hallam
Cheers James. Sounds alright for the UK and the FTSE. France has been struggling a bit.
James Timpson
Yes. Obviously there’s been lots of unrest in France at the moment. Rising debt levels, a really uncertain fiscal situation and political uncertainty as well, leading into next year’s election has been accentuated by all the social unrest that we’ve seen in the last months, all those riots that you’ve been hearing about.
Having said that, though, the French stock market was actually fairly resilient during the month, the CAC index was up 0.1 percent for the month. However, there’s been a lot more volatility in the French bond market, and the French ten year Treasury yield surpassed 5% for the first time since 2002.
Leo Hallam
And what does that mean?
James Timpson
It just means that French government debt has gotten really expensive.
It’s become more expensive for them to borrow money.
Leo Hallam
And looking further out across the globe, we had quite a surprise win in the Brazilian election. Yeah. So, so Bolsonaro has been in power for a while now, but in the election last month, there was a surprise win for Lula, who is a more left wing candidate. And this was a surprise. And it resulted in quite a sharp downturn in Brazilian markets. So the Bovespa index was down about 14% on the day, and the index ended the month down about 10%. So, initial market reaction was unfavourable. But we have to wait and see what happens with that.
Leo Hallam
How do you see all this rolling into November? Any clues so far or the midterms might settle it down a bit?
James Timpson
Well, you hope so. Not least because we’re leading up to our Annual Client Presentation in December. So if markets could, you know, just behave for a little bit longer. Hopefully we’ll be able to, certainly year to date so far, returns are looking really good. So just one more month of good behaviour, and, next month’s presentation should be looking pretty good.
Leo Hallam
Thanks, James. And that does, of course, replace the Market Update in December, so I shall look forward to catching up with you and hearing all about fund performance and markets throughout the year.
If you do have any questions, please speak to your Adviser or contact us through the website. Otherwise, we look forward to delivering some insightful information at the end of this year. Thank you.
