Global markets fell over the month of October as concerns around rapidly rising infection rates in the US & Europe, consequential impending renewed economic activity lockdowns, a potentially contested race for the White House and ongoing issues getting a US stimulus deal passed, all weighed on investors’ sentiment.
The S&P 500 was down 5.6% in the last week of October bringing the Months loss to 2.7%, despite strong quarterly earnings from Tech firms.
Despite strong earnings beats and better-than-expected GDP figures in many regions, Equities across developed markets finished October generally lower as it became apparent that the surge in activity over the summer was petering out due, in part, to the threat of future lockdowns preventing consumers from making long term commitments again. With financial recoveries for future unsatisfied events now uninsurable, combined with employment and government support uncertainties, ‘would be’ consumers and businesses are understandably more cautious on their spending plans. Their approach has been somewhat justified given coronavirus cases and hospitalisations throughout Europe and the US have surged significantly and now led to further containment measures.
Rates were largely mixed in October. In the U.S., the 10-year Treasury yield rose 0.19% to 0.87% – a four month high – ahead of the upcoming U.S. elections. In the U.K., and Japan, the 10 year U.K. gilt and Japanese Government Bond yields each fell 0.03% to 0.26% and 0.04%, respectively. In Germany, rates fell across all maturities with the 10-year Bund yield ending the month 0.11% lower at -0.63%.
Global investment grade bonds fared better with credit spreads tightening 0.08% to 1.18%, enabling the sector to return a positive 0.10% for the month, outperforming similar duration global government bonds by 0.63%.
The price of a barrel of Brent crude oil, often a good barometer of global activity, declined over the month and closed at $37.46/bbl. This represents their lowest level since May and demonstrates the envisaged impact of likely lockdowns in terms of curtailing mobility of goods and people. Expectations for a further increase in Libyan output after the country’s two main factions agreed to a permanent ceasefire added complications to plans for OPEC+ to taper output restraint.
I write this on election day, having just booked my last haircut and restaurant meal until at least the 2nd December. Such renewed uncertainty caused by this second wave is unwelcome for long term investors, but we are confident that by sticking to our principles of appropriate long term asset allocation combined with thoughtful stock picking and risk management, clients’ objectives will still be met over the longer term.