Market update: October 2022

October proved volatile but was a lot brighter than September. This was due to a positive market sentiment - among investors - that the series of interest rate hikes might be coming to an end. This was despite inflation showing no sign of slowing down and the disappointing quarterly results from big tech companies such as Meta Platforms and Amazon. ‍Politics also played an important role this month. Whether it was the election of Xi Jinping to a third term or the appointment of Rishi Sunak as the third Prime Minister of the United Kingdom in just two months. And although politics exerted significant pressure, the European Central Bank (ECB) doubled the interest rate by 0.75%. 

Emerging market stocks performed worse as investors are concerned about China's growth forecasts. Globally, investors fear a short-term focus on power rather than growth due to the newly appointed 'standing committee' in the Chinese government. 

Bond yields initially rose in the US and Germany but cooled down in the second half of the month due to changing sentiment.  

Best fund performance in October 2022: ‍NT World Small Cap ESG Low Carbon Index Fund +6.15%‍

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Banks and energy companies outperform tech giants, central banks continue to raise interest rates in their fight against inflation. 

Stocks in developed countries bounced back from the disappointing month of September. After nine consecutive weeks of outflows from global equity funds, there was significant investment again in the last week of October. 

According to Refinitiv Lipper (a renowned financial services provider that offers impartial performance data on, for example, pension or equity funds), the total net inflow that week was around $7.8 billion.  

The S&P 500 closed the month 9.2% higher. Inflation in the United States was still higher than expected in October (8.2%). But the market was supported by growing optimism that central banks would slow the pace of rate hikes. This is because:

- The Bank of Canada implemented a smaller rate hike than expected (0.5%).- Christine Lagarde (ECB) expects the Eurozone to enter a recession. - FED governors indicated that interest rates would rise less quickly again.

Stocks in Europe followed their American counterparts (STOXX 600 +6.3%). 

Liz Truss resigned as Prime Minister of the UK. Rishi Sunak was appointed as her successor with the challenge of getting the British economy back on track. The British pound recovered slightly (1.15 GBP vs. 1 USD) after the election. And some short-term breathing room was created for the British government to borrow money to recover from Brexit and Covid as bond yields fell. 

Emerging Market stocks performed worse than the 'developed' ones. China remains a concern for investors worldwide. It is expected that the newly appointed 'standing committee' has more focus on power than growth in the short term. Furthermore, the continuing Covid-19 restrictions for China seem to be a challenge for returning to their economic growth. 

India and Korea, on the other hand, performed better, but TSMC (the chip manufacturer from Taiwan) struggled during the month due to a predicted decline in the demand for chips and lower expected investments in the coming quarters. 

The price of crude oil rose (+11%) because OPEC+ limited the pumping of crude oil to 2 million barrels per day. Other commodities such as gold and silver did not change much, despite developments in sentiment. 

US and European 10-year yields rose sharply, by 24 basis points in the US and 4 basis points in Germany. This is thanks to the perseverance of global central banks in fighting inflation by implementing interest rate hikes.

High-yield bonds (+0.64%) and corporate bonds (+0.42%) showed relatively slightly better results, with a decrease in the risk premium during the month due to the positively influenced sentiment. 

Money market rates rose after the interest rate doubled. The money market return is expected to continue rising to a level of 1.5% next month after the next rate hike. 

What does November have in store for us? 

- Meeting of the Federal Reserve (FED)- Ongoing developments in the situation in Ukraine- Economic data pointing to less inflation and a lower chance of a recession as a basis for continued optimism. 

What does all this mean for my plans?

Do not let the market disrupt your long-term goals. Vive's investment strategies take the declining market into account. Ultimately, well-diversified portfolios are the key to long-term success. Consistent periodic investing during periods like this is crucial to benefit from falling markets.

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