Following a strong rally during the first nine months of the year, global markets faced widespread challenges in October, with both developed market equities and bonds declining. Sentiment was weighed down by a mix of factors, including a weak US job report, primarily because of the hurricanes and strikes, mixed earnings from major US technology stocks, the uncertain outcome of the US election and the impact of a policy shift on inflation and interest rates. Oil prices were choppy, as macroeconomic concerns and risks of falling demand were weighed against the geopolitical tensions in the Middle East. Both global small caps and listed property fell due to expectations of a slower path for US Fed rate cuts. Bond markets faced pressure during the month, with US and German 10-year government bond yields reaching their highest levels since July, and UK 10-year yields climbed to a year-long high amid concerns over the UK budget’s impact on economic stability.
In the US, corporate earnings have been a relative bright spot, helping to bolster sentiment amid broader uncertainty. With the majority of S&P 500 companies having reported third-quarter earnings, 75% have exceeded estimates, in line with the decade-long average. US companies are on track for their fifth consecutive quarter of year-over-year earnings growth, reinforcing investor confidence. Looking further ahead, consensus estimates project earnings growth of +9.3% in 2024 and +15.1% in 2025, signalling expectations for corporate resilience and ongoing profitability despite the challenging macro environment. Strong demand for new bond issues, solid corporate balance sheets, and robust economic data has kept government premiums stable, reflecting low recession risk.
European equities faced headwinds from mixed economic data and inflationary challenges, however the European Central Bank cut interest rates for a third time this year and acknowledged signs of weakening economic momentum. Eurozone sovereign bonds were hit by the global weakness in fixed income markets, however high yield bonds proved resilient. European fixed income appears attractively valued relative to the US, supported by the relatively more predictable path of interest rate cuts.
The UK budget on 30th of October put pressure on the UK Gilt market due to stronger-than-expected levels of spending now planned for 2025. Investors’ interest rate expectations once again changed tack and nervousness around the Budget through the potential for increased borrowing continued, UK gilts were under pressure. This was despite some near-term good news on inflation earlier in the month. UK CPI came in at 1.7% for September, lower than forecast, increasing the likelihood the Bank of England would increase the pace of interest rate cuts. Smaller companies and more domestically exposed retail and hospitality businesses were under pressure. Albeit there was a small bounce for the AIM market where fears of a full removal of IHT relief were alleviated. The labour market remains tight, with the unemployment rate falling to 4.0% and pay growth remaining high at 4.9% year-over-year in August.
Emerging market equities were impacted by a stronger US dollar during October, with volatility in Chinese equity market given the uncertainty over the efficacy of the support measures announced in September. Following a strong rally this year, Indian stocks fell sharply due to weak corporate results. Going forward, attention is focused on China, where the Standing Committee of China’s National People’s Congress is meeting at the start of November. Investors are hoping for more details on stimulus plans. Potential announcements may include expanded government spending, new bond issuances, and additional support for China’s struggling property sector. China’s fiscal approach may also be influenced by US election results, particularly regarding trade policies that could affect Chinese exports.
The start of November is particularly pivotal for markets. The US presidential election has prolonged uncertainty, as President Trump gets ready to take power, the predictions of his fiscal policies will weigh in on market prices for the months up to his inauguration. Investors are also closely monitoring a series of central bank interest rate decisions. The Reserve Bank of Australia have recently left interest rates unchanged at 4.25%, and announcements followed soon after by the central banks of the US, England, Sweden, and Norway. With Norway the only one to hold interests’ rates still. Given the importance of these events, and the fact the Bank of England cut interest rates to 4.75%, markets seem to be shifting, with both equity and debt capital markets moving to fit the new investment landscape.
As market conditions evolve and investors navigate the current global financial market landscape, selective opportunities may be found in equity markets and quality fixed income assets. Uncertainty around the path for interest rate cuts, along with macroeconomic challenges, unpredictable inflation and geopolitical risks may cause bond market volatility to persist, however further interest rates cuts should be supportive.
Market Performance | 2024 Year to Date |
FTSE All-Share | +8.05% |
FTSE World ex-UK | +15.48% |
FTSE Actuaries UK Conventional Gilts All Stocks | -2.71% |
FTSE Actuaries UK Index-Linked All Stocks | -4.49% |
Total returns in GBP to 31/10/2024
Key Rates | |
Bank of England Base Rate | 5.00% |
Inflation (Retail Price Index/Consumer Price Index)* | 2.70%/1.70% |
*September 2024
Source of data: FE Analytics, www.bankofengland.co.uk, www.ons.gov.uk This commentary in no way constitutes a solicitation of investment advice and should not be relied upon in making investment decisions. Past performance is not a reliable indicator of future results. The value of your investments can fall as well as rise and are not guaranteed.