Market Opinion - October 2023

Market Opinion - October 2023

Global stock markets experienced a downturn in October due to concerns over prolonged high US interest rates caused by persistent inflation and escalating conflicts in the Middle East. This led to a decline in bonds and a spike in yields, while gold prices increased as investors sought safer assets.

US stocks were impacted negatively as expectations for the end of the Federal Reserve's stringent policies were delayed amidst ongoing high inflation and a strong US economy. The ongoing war in Ukraine and new conflicts in the Middle East also contributed to market unease.

Despite these challenges, the US economy grew at a rate of 4.9% in Q3 2023, surpassing expectations. Consumer spending played a significant role in this growth. However, inflation remained stable at 3.7% over the past 12 months, and industrial activity showed signs of expansion.

Federal Reserve Chair Jerome Powell hinted at the possibility of further monetary tightening, with interest rates already at their highest in 22 years. Energy and consumer discretionary stocks were particularly hard hit, while utilities, IT, and consumer staples fared relatively better.

Eurozone stocks also saw a decrease, with only utilities and consumer staples making modest gains. The European Central Bank maintained its interest rates in October, ending a streak of increases. Inflation in the Eurozone showed signs of easing, fueling speculation that the rate-hiking cycle might be concluding.

In the UK, equities declined due to concerns over the impact of higher interest rates on banks and consumer sectors. The British economy showed signs of weakening, with declining consumer confidence and house prices.

Japanese stock markets also fell, with financial stocks benefiting from rising long-term yields. The Bank of Japan adjusted its yield curve control policy in response to increasing inflation and economic growth forecasts.

Asian markets, excluding Japan, faced declines due to higher interest rates and geopolitical tensions. This was especially evident in South Korea, China, and Hong Kong, where investor sentiment was affected by various economic and political factors.

Emerging markets underperformed compared to developed markets, with Turkey, Korea, and GCC countries struggling due to various economic pressures. Brazil, Thailand, and India, however, showed some resilience.

In bond markets, expectations of high interest rates persisted, especially in the US. The European Central Bank kept rates steady, while the UK's economic data indicated a potential slowdown.

Corporate bond markets saw widening spreads and underperformance, with convertible bonds also facing losses due to equity market headwinds. The S&P GSCI Index dropped, with precious metals being the only component showing significant gains, driven by investors seeking safe-haven assets amid geopolitical uncertainties.