Global markets faced a turbulent October as a mix of economic, political, and policy-related challenges weighed on investor sentiment. 2024 has seen equity markets deliver positive returns but part of these returns were given up in October. Markets had several things that they looked to address through the month, which included the UK budget, a weaker U.S. jobs report, mixed corporate earnings from major tech companies, and uncertainties surrounding the U.S. election. Additionally, the Federal Reserve’s slower path for rate cuts, ongoing inflation concerns, and fluctuating oil prices due to Middle Eastern tensions added to market pressures, while gold continued to rally on the back of all these market uncertainties.
The dollar rallied over +3% versus the pound during October. This meant that the global equity index and US equities were positive from a sterling perspective, but all driven by movements in the currency markets.
As we move into November, investors are focusing on central bank decisions, potential shifts in fiscal policy, and economic resilience in both developed and emerging markets, all of which could shape the investment landscape for the months ahead.
In the UK, Labour’s first budget since 2010 unveiled plans to increase both taxes and spending for 2025, raising concerns about higher borrowing. UK inflation fell to 1.7% in September, creating an opportunity for the Bank of England to cut interest rates, which they did—reducing the rate by 0.25% to 4.75%. While such moves typically lead to positive returns for bonds, the market reacted differently. UK Gilts and corporate bonds sold off by -2.3% and -1.1%, respectively, as investors had already priced in a faster and more aggressive series of rate cuts than the Bank may now deliver. The UK equity market also declined, with a sell-off of -2.0%.
The Alternative Investment Market (AIM), a sub-market of the London Stock Exchange designed for smaller UK companies to raise capital with less regulation, has faced significant pressure in recent months. Concerns arose that the budget would eliminate key benefits of being listed on the AIM index. However, while the outcome was less severe than feared, the market only rebounded slightly and remains under water for the year.
In the U.S., corporate earnings offered a bright spot amid broader economic uncertainty. Most S&P 500 companies reported stronger-than-expected third-quarter earnings, supporting investor confidence and marking five consecutive quarters of year-over-year growth. This corporate resilience has contributed to limited recessionary fears for now.
European equity markets were the worst performing region over the month, declining -3%. This was driven by mixed economic data and inflation concerns. However, the European Central Bank’s recent rate cut, its third this year, could provide some relief going forward.
Emerging markets were impacted by a stronger U.S. dollar, with Chinese equities in particular seeing volatility as investors awaited more concrete results from recent support measures. Investors are eagerly anticipating more specifics on potential stimulus measures, which could include increased government spending, new bond issuances, and added support for China’s troubled property sector. China’s fiscal strategy may also be shaped by the outcome of the U.S. election, particularly if Trump’s trade policies affecting Chinese exports come into play.
November is shaping up to be a pivotal month for markets, as President Trump prepares to take office, and his potential fiscal policies begin to affect market expectations. Investors are also watching central bank actions globally, as rate changes continue to guide both stock and bond market dynamics. While the current landscape remains challenging, selective opportunities may arise. Although ongoing economic uncertainty, inflationary pressures, and geopolitical tensions could lead to persistent bond market volatility, further rate cuts are likely to lend support as markets adapt to the evolving environment.
19th November 2024
Cappuccino Commentary
A relaxed read on the issues of the day
Global markets faced a turbulent October as a mix of economic, political, and policy-related challenges weighed on investor sentiment. 2024 has seen equity markets deliver positive returns but part of these returns were given up in October. Markets had several things that they looked to address through the month, which included the UK budget, a weaker U.S. jobs report, mixed corporate earnings from major tech companies, and uncertainties surrounding the U.S. election. Additionally, the Federal Reserve’s slower path for rate cuts, ongoing inflation concerns, and fluctuating oil prices due to Middle Eastern tensions added to market pressures, while gold continued to rally on the back of all these market uncertainties.
The dollar rallied over +3% versus the pound during October. This meant that the global equity index and US equities were positive from a sterling perspective, but all driven by movements in the currency markets.
As we move into November, investors are focusing on central bank decisions, potential shifts in fiscal policy, and economic resilience in both developed and emerging markets, all of which could shape the investment landscape for the months ahead.
In the UK, Labour’s first budget since 2010 unveiled plans to increase both taxes and spending for 2025, raising concerns about higher borrowing. UK inflation fell to 1.7% in September, creating an opportunity for the Bank of England to cut interest rates, which they did—reducing the rate by 0.25% to 4.75%. While such moves typically lead to positive returns for bonds, the market reacted differently. UK Gilts and corporate bonds sold off by -2.3% and -1.1%, respectively, as investors had already priced in a faster and more aggressive series of rate cuts than the Bank may now deliver. The UK equity market also declined, with a sell-off of -2.0%.
The Alternative Investment Market (AIM), a sub-market of the London Stock Exchange designed for smaller UK companies to raise capital with less regulation, has faced significant pressure in recent months. Concerns arose that the budget would eliminate key benefits of being listed on the AIM index. However, while the outcome was less severe than feared, the market only rebounded slightly and remains under water for the year.
In the U.S., corporate earnings offered a bright spot amid broader economic uncertainty. Most S&P 500 companies reported stronger-than-expected third-quarter earnings, supporting investor confidence and marking five consecutive quarters of year-over-year growth. This corporate resilience has contributed to limited recessionary fears for now.
European equity markets were the worst performing region over the month, declining -3%. This was driven by mixed economic data and inflation concerns. However, the European Central Bank’s recent rate cut, its third this year, could provide some relief going forward.
Emerging markets were impacted by a stronger U.S. dollar, with Chinese equities in particular seeing volatility as investors awaited more concrete results from recent support measures. Investors are eagerly anticipating more specifics on potential stimulus measures, which could include increased government spending, new bond issuances, and added support for China’s troubled property sector. China’s fiscal strategy may also be shaped by the outcome of the U.S. election, particularly if Trump’s trade policies affecting Chinese exports come into play.
November is shaping up to be a pivotal month for markets, as President Trump prepares to take office, and his potential fiscal policies begin to affect market expectations. Investors are also watching central bank actions globally, as rate changes continue to guide both stock and bond market dynamics. While the current landscape remains challenging, selective opportunities may arise. Although ongoing economic uncertainty, inflationary pressures, and geopolitical tensions could lead to persistent bond market volatility, further rate cuts are likely to lend support as markets adapt to the evolving environment.
This information is intended for professional financial advisers only. Copia does not provide financial advice. This information is not intended as financial advice and should not be interpreted as such.