October’s investment market commentary

October proved to be a very good month for markets after a challenging third quarter, as risk assets rallied strongly during the period. Sentiment was supported mainly by a decline in expectations for interest rate increases, with speculation that central banks (specifically the Federal Reserve) would start to ‘pivot’, become less hawkish and start to slow the pace of rate increases.  The restoration of some stability in the UK government, with Rishi Sunak replacing Liz Truss as prime minister, and a greater emphasis placed on fiscal prudence also assisted in stabilising markets, especially UK government bond markets. Warm weather in Europe helped to reduce natural gas prices, taking some pressure off consumers, companies, and governments that are looking to stockpile ahead of winter.

Global equity markets (+6.1%) were up sharply on the month. A large weighting to the technology sector benefited US equities (+7.9%), while emerging market equities (-2.6%) were held back by the big decline in Chinese stocks over fears that President Xi Jinping’s third term as Chinese Community Party (CCP) leader may be less market friendly. In terms of style, value / cyclical stocks (+8.5%) outperformed the more growth (+3.5%) oriented equities. This reflected in sector performance, with energy (+18.0%), industrials (+9.8%) and financials (+7.8%) the best performing areas. At the other end of the spectrum communication services (-0.9%), consumer discretionary (-0.4%) and real estate (-0.3%) lagged.

Within fixed income markets, the strong rally in equity markets meant lower-rated (below investment grade) credit outperformed government bonds over the period. Looking at the detail, global government bond prices were basically flat (-0.1%), UK government bonds (+3.1%) outperformed with yields falling back towards pre-mini budget levels. Elsewhere, global investment grade credit (-0.6%) declined slightly, and global emerging market debt (+0.1%) was largely unchanged. It was at the riskier end of the credit spectrum with global high yield (+1.9%) that produced the best returns in October.

In terms of real assets, property in the form of global REITs (+3.0%) and global listed infrastructure (+4.8%) both generated good returns, albeit slightly less than equities over the month. Commodities (+2.0%) also rose in October, but this was led primarily by crude oil (+11.1%), as OPEC members agreed to impose deep cuts to supply. In comparison, the strength of the US dollar and the likelihood of further interest rate rises continued to weigh on gold (-1.6%).

This month’s values quoted as at 31/10/2022. The above values are sourced from Bloomberg and are quoted in the relevant currency.