US market indexes have displayed remarkable resilience, remaining in positive territory despite a backdrop of increased volatility in October. The S&P 500 recorded a gain of 2.2%, while the Nasdaq surged by over 4.5%. This period of market performance comes amid escalating geopolitical tensions in the Middle East, combined with mixed reactions to the corporate earnings reports released by various companies.
As October transitions into November, all eyes will be on the “Magnificent Seven”—the tech giants Microsoft, Alphabet, Amazon, Meta Platforms, and Apple—set to announce their earnings this week. These five companies constitute about 23% of the S&P 500’s weight, making investor reactions to their results crucial in determining whether indexes will continue to climb or experience a pullback.
Among the large firms that reported earnings this month, Tesla, Philip Morris International, and Netflix stood out each enjoying stock price gains exceeding 10% after announcing strong third-quarter results. This positive sentiment extended to technology stocks, with Nvidia achieving a new record high after favourable earnings from Taiwan Semiconductor reignited enthusiasm for artificial intelligence-related investments. However, not all companies fared as well; Lockheed Martin and HCA Healthcare experienced their most significant stock declines in years, highlighting the mixed landscape of corporate performance.
The recent sell-off in US Treasuries has generated ripples across various markets, impacting everything from gold prices to currency exchange rates. Investors are increasingly cautious, warning that volatility appears “locked in” ahead of next month’s presidential election. The annual core Consumer Price Index (CPI) inflation rate stood at 3.3% for September, which was stronger than market predictions. Business activity demonstrated signs of growth in October, driven by robust demand, suggesting that the economy entered the fourth quarter on a solid footing.
The US economy expanded at a rate of 2.8% in the July to September quarter, slightly falling short of estimates and the 3% growth recorded in the second quarter. This GDP release arrives as the Federal Reserve considers further interest rate cuts, even as the economy exhibits strength and inflation remains above its target, albeit significantly reduced from its peak in mid-2022. The consensus among market analysts suggests that the Fed is likely to implement another quarter-point cut to its benchmark short-term borrowing rate when policymakers conclude their meeting on November 7.
Turning to Europe, the region-wide Stoxx Europe 600 index experienced a decline of 1.6% for the month of October. Eurozone inflation dipped to 1.7% last month, falling below the European Central Bank’s (ECB) target for the first time in three years. This trend was mirrored in major economies such as Germany, France, and Italy, where inflation figures also fell below the 2% target.
This decline in inflation, primarily driven by a 6% annual drop in energy prices, has strengthened expectations that the ECB will cut rates for the second consecutive meeting in October. While energy prices showed a decrease, services inflation remained elevated at 4%, only slightly down from 4.1% in August. In line with market expectations, the ECB reduced its interest rate by 0.25% to 3.25%, marking its first back-to-back cut in 13 years. Economic activity across the Eurozone continued to contract in October, with new orders and business confidence decreasing for the fifth consecutive month.
The UK’s benchmark index, the FTSE 100, recorded a drop of 1.2% for the month. The decline was primarily driven by the energy sector and falling oil prices, which negatively impacted companies like BP. Investors are also focusing on the forthcoming budget announcement from Finance Minister Rachel Reeves, who will outline her initial tax and spending plans. This budget aims to navigate the challenging balance between raising taxes and promoting economic growth for the new government.
In the UK, the annual inflation rate fell to a three-year low of 1.7% in September, down from 2.2% over the previous two months, slipping below the Bank of England’s 2% target. This easing in inflation opens the door for the Monetary Policy Committee to consider rate cuts during its next meeting, having previously paused in September after a narrow vote to start easing in August. Market analysts widely anticipate a quarter-point reduction in interest rates when the BoE convenes on November 7. The S&P Global Flash Composite Purchasing Managers’ Index for October revealed that business confidence has reached its lowest level since November 2023, with the slowest growth in the services and manufacturing sectors seen in 11 months and hiring shrinking for the first time this year.
In China, all major markets ended the month in the red, struggling for direction after the much-anticipated fiscal stimulus measures announced last month were not rolled out as expected. Nonetheless, Finance Minister Lan Foan reiterated Beijing’s commitment to reviving the struggling economy, promising increases in government debt and support for both consumers and the property sector. China’s economy grew at its slowest pace since early 2023 in the third quarter, with GDP rising by 4.6% year-on-year, according to data from the National Bureau of Statistics (NBS). While the NBS reported a pickup in activity in September, with retail sales climbing 3.2% and industrial output increasing by 5.4% YoY, the annual inflation rate fell below forecasts, landing at 0.4%.
In Japan, the Yen weakened after the ruling coalition failed to secure a parliamentary majority in the recent elections. This depreciation of the Yen resulted in a decline against the US dollar and other major currencies, including the Euro and Swiss Franc. The cheaper currency has buoyed Japan’s export-oriented stocks, propelling the Nikkei 225 index up by nearly 2%. The annual inflation rate in Japan fell to 2.5% in September from 3.0% in the previous month, marking the lowest reading since April.
The Bank of Japan (BoJ) is expected to maintain its policy rate at 0.25% during its two-day policy-setting meeting this week, concluding on Thursday. The BoJ is also anticipated to release its quarterly outlook on growth and prices, likely maintaining the view that inflation will remain around its 2% target through March 2027. The slowdown in inflation in Japan reflects the government’s reintroduction of programs aimed at reducing household utility costs, with service inflation easing to 1.3% in September from 1.4% in August.
In conclusion, the global economic landscape remains complex, with various factors influencing market movements across the US, Europe, and Asia as we approach the final stretch before the Nov. 5 US presidential election, and central banks contemplate their next moves.
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*Disclaimer: This market review is for informational purposes only and does not constitute financial or investment advice. GSB accepts no responsibility for any errors or omissions. Past performance is not indicative of future results. Please consult a qualified financial adviser before making investment decisions.