Our last report in this series came out close to the early-October lows for most equity markets. Since then, markets have been climbing a ‘wall of worry’ with decreasing volatility, though the NASDAQ is still struggling after some dull(ish) figures from some of the mega-caps.

The background is still dominated by the response to the (still high) inflation figures from central banks and the bond markets. The Federal Reserve, ECB and Bank of England all raised their base interest rates by 75bp over this period, amidst much debate as to how much further these might have to go and where the terminal rate is likely to be. The US ten-year yield gained a further 25bp (to 4.2%) and the thirty-year gained 40bp to 4.3%. In Europe, ten-year Bunds edged up just 5bp to 2.34%, the thirty-year was little changed. The UK was a special case after the drama of September, the new administration of Rishi Sunak and Jeremy Hunt (with sensible assistance from the Bank of England) has restored calm and rates came back down again. The UK ten-year yield fell around 80bps and the thirty-year close to a full percentage point.

In America, the S&P 500 gained 6% over this four-week period while the Nasdaq gained just 1%, reflecting the weakness in some of the leading tech companies. European markets were generally strong, led by Germany with an 11% gain, while Hong Kong slipped amid continuing gloom after the Communist Party Congress appeared to do little to encourage the private sector and President Xi cemented his grip on the Party.

There have been remarkably few weak stocks over this period, Meta Platforms (Facebook) stood out with a savage 25% fall after their Q3 results. Mark Zuckerberg asked investors for patience, but the market was not in the mood for such appeals as Meta reported declining revenues, a trend they expect to continue into the final quarter. Amazon.com was a close second with a 19% fall after their Q3 results, in contrast to Meta they reported growing revenue and earnings, but their outlook was more cautious than the market wanted to see. Alphabet complete this trio with a 9% fall in their stock price as they noted that near-term sales faced headwinds, notably from the strength in the US dollar, something that was a feature of the commentary of most of the big US companies reporting.

After that trio of tech stocks, it was hard to find weak features among the major companies, Credit Suisse fell again after announcing a (further) major overhaul of the bank and Tesla sank 9% as Elon Musk completed on his purchase of Twitter. There were good features among the tech companies, notably for the chip manufacturers: Intel, Nvidia and Samsung Electronics all gained double figure percentages and Netflix gained 20% after better subscriber figures. Other than Amazon.com and Tesla, it was a strong period for the consumer discretionary companies from Panasonic and Sony, gaining 18%, to Ford and Mercedes-Benz up by a similar amount, to McDonalds with a 17% gain after reporting Q3 sales up 9.5%

Industrials provided some of the best of the performance, Caterpillar and General Electric both gained close to 30%, while ABB and Atlas Copco on this side of the Atlantic and Recruit Holdings in Japan all gained mid-teens percentages. In the financials, the banks turned sharply lower again with Credit Suisse in the spotlight again and their shares sinking to an all-time low. The financials were strong across the board, most notable being the sharp recovery in the big US banks after their figures, JPMorgan Chase jumped 29% and Goldman Sachs 23%, both from very depressed levels early in October.

The US October inflation report is due out soon and this is likely to set the tone for the next few weeks. As we keep repeating, it is still all about inflation and the (hoped for) time when the markets can be convinced that the Fed has done enough. We expect to see earnings fall in some areas as economies head into recession, but the driving force for markets is set to be that inflation prospect.

The above article has been prepared for investment professionals. Any other readers should note this content does not constitute advice or a solicitation to buy, sell, or hold any investment. We strongly recommend speaking to an investment adviser before taking any action based on the information contained in this article.

Please also note the value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.

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