October’s Tricks, Treats, and Turbulence!

In October, markets faced heightened volatility, with equities giving up some of the year’s earlier gains. This downturn came amid rising uncertainties surrounding the upcoming U.S. election, the potential impact of policy shifts on inflation and interest rates and geopolitical uncertainty.

The S&P 500 Index dipped 1.0% in October despite stronger economic data, weighed down primarily by underperformance in semiconductor stocks. The financials sector outshined others, driven by positive reactions to strong earnings reports from major banks. Communication services also posted gains. On the other hand, health care was the weakest sector, followed by consumer staples and real estate.

In Europe, signs of economic weakness became more evident, especially in Germany, where manufacturing activity continued to contract. This challenging environment led to a decline in European equities over the month.

Chinese and Hong Kong markets also declined sharply in October. Stimulus measures from the Chinese government, aimed at invigorating the slowing economy, fell short of lifting investor confidence.

Japan, however, emerged as the top performer. Despite the Bank of Japan’s hawkish tone in its October meeting and political uncertainties following the ruling coalition's loss in the election, a weakened yen helped to boost Japan’s equity market.

Indian equities, which had led much of 2024, saw a sharp correction in October, dropping 6.2 % in local currency terms. This decline was driven by mixed corporate earnings reports, concerns over potential oil supply disruptions linked to the conflict in the Middle East and some profit booking.

Bond Markets in Flux

October’s economic data in the United States painted a mixed picture, with strong labor market signals but uncertain inflation trends. While September’s core CPI was higher than expected, October’s preliminary PMI showed the lowest business prices since May 2020. This mix has shifted expectations for Federal Reserve policy, with lower odds of substantial rate cuts in the coming months.

The 10-year Treasury yield climbed significantly, from under 3.8% to nearly 4.3%. Despite the Fed’s recent rate cut, persistent core inflation and a strong labor market have lowered the chances of another 50-basis-point cut soon, keeping fixed-income markets on edge. Fixed income markets are likely to experience further volatility until the path for rate cuts becomes clearer.

In Europe, the ECB acknowledged economic softening, notably in manufacturing, and enacted its third 25-basis-point cut this year, reflecting a steadier rate path than the U.S. Meanwhile, the UK saw a sharp drop in headline inflation, but new budget spending plans have pressured the Gilt market.

Earnings Mix

The third-quarter earnings season kicked off with robust results from the banking sector, setting a positive tone. However, tech companies offered mixed guidance, particularly concerning semiconductor demand, which contributed to market volatility. Overall, while earnings surprises were present, they were among the lowest in recent quarters, indicating a slowing momentum in earnings growth.

Bitcoin Breaks New Ground

Bitcoin surged past $70,000 for the first time since June, reaching an all-time high. The 11.0% monthly gain was driven by stimulus measures from China and polls suggesting a possible Trump victory in the U.S. presidential election.

Attention remains centered on the election’s outcome and its potential impact on the direction of digital asset regulation. Regardless of the winner, any movement toward regulatory clarity is likely to be welcomed by the industry, signaling positive momentum for digital assets.

Safe-Haven Surge Continues

Gold continued to shine as the standout performer for yet another month. This year has seen a remarkable surge in the precious metal’s value, with gold mining stocks following suit. Geopolitical tensions remain a key driver, steadily increasing demand for the traditional safe-haven asset.

Oil prices remained volatile as concerns over the global economy and potential demand declines were counterbalanced by heightened geopolitical tensions in the Middle East.