Market update: October 2022

October proved volatile but was a lot rosier than September. This was due to a positive sentiment in the market - among investors - that the series of interest rate hikes might be coming to an end. Despite inflation showing no sign of slowing down yet and disappointing quarterly results from big tech companies such as Meta Platforms and Amazon.
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Politics also played an important role this month. If not by Xi Jinping's election to a third term. Then by the appointment of Rishi Sunak as the third prime minister of the United Kingdom in just two months. And even though politics applied considerable pressure, the European Central Bank (ECB) doubled interest rates by 0.75%. 

Emerging market equities underperformed as investors have concerns about China's growth forecasts. Global investors fear a short-term focus on power rather than growth by the newly appointed "standing committee" in China's government. 

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

Best fund performance in October 2022:
‍NTWorld Small Cap ESG Low Carbon Index Fund +6.15%
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Banks and energy companies outpace tech giants, central banks continue to raise interest rates in their fight against inflation. 

Developed country equities rebounded from the disappointing September month. After nine consecutive works of outflows from global equity funds, investment was back in full force - in the last week of October. 

According to Refinitiv Lipper (reputable financial services provider that offers unbiased performance data on e.g. pension or stock funds), net inflows that week totaled about $7.8 billion.  

The S&P 500 closed the month 9.2% higher. Inflation in the United States in October was still higher than expected (8.2%). But the market was buoyed by growing optimism that central banks are raising interest rates at a slower pace. This is because:

- Bank of Canada rate hike smaller than expected (0.5%).
- Christine Lagarde (ECB) expects the Eurozone to enter recession.
- Fed governors shared that interest rates are less likely to rise again.

Equities in Europe followed their U.S. counterparts (STOXX 600 +6.3%). 

Liz Truss stepped down as prime minister of the UK. Rishi Sunak was appointed as 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 space emerged for the british government to borrow money to recover from the Brexit and Covid as bond yields declined. 

Emerging Markets equities fared worse than "developed" ones. China remains a concern for investors around the world. The newly appointed "standing committee" is expected to be more focused on power than growth in the near term. In addition, the continued Covid-19 restrictions appear to be a challenge for China to return to their economic growth. 

India and Korea, on the other hand, did better, but TSMC (the Taiwan-based chip maker) struggled during the month due to predicted declines in chip demand and less expected investment in the coming quarters. 

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

U.S. and European 10-year yields rose sharply, by 24 basis points in the U.S. and 4 basis points in Germany. Thanks to the persistence of global central banks to fight inflation by implementing interest rate increases.

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

Money market rates rose after interest rates doubled. Money market yields are expected to continue rising to a level of 1.5% next month after the next interest rate hike. 

What does November have in store for us? 

- Federal Reserve (Fed) meeting
- Continued developments in the situation in Ukraine
- Economic data pointing to lower inflation and less likelihood of recession as a starting point for continued optimism. 

What does all this mean for my plans?

Don't let the market disrupt your long-term goals. Vive's investment strategies take into account market downturns. Ultimately, well-diversified portfolios are the key to long-term success. Consistent periodic investing in periods such as these is crucial to take advantage of falling markets.