October 2 0 2 4 • I S S U E 46

October Markets

October 2024 presented a mixed landscape across global financial markets, characterised by some volatility and sector-specific divergences. Major indices experienced fluctuations influenced by economic data releases, central bank policies, and geopolitical events. Despite these challenges, certain sectors demonstrated resilience, offering a nuanced perspective on the global economic outlook.

US Markets

In the United States, the S&P 500 Index declined by 0.9% in October, marking its first monthly loss since April. This downturn was primarily driven by a significant sell-off in technology stocks, with the Nasdaq Composite falling by 2.8% on the final trading day but still only 0.5% for the month as a whole, somewhat due to disappointing earnings reports from major tech firms. Conversely, sectors such as utilities and real estate exhibited strength, benefiting from investors' shift towards more defensive assets amid some degree of market uncertainty.

Eurozone

European markets faced challenges in October, with the MSCI Europe ex-UK Index declining by 3.2% for the month. Economic indicators remained mixed, as the region grappled with subdued economic conditions and disappointing earnings from cyclical companies. Despite these headwinds, certain sectors, including consumer staples and healthcare, provided stability, reflecting investors' preference for defensive stocks when a degree of economic uncertainty is present.

UK Markets

In October, the UK market faced some headwinds, with the FTSE All-Share Index declining by 1.6% over the month. This dip reflected broader market challenges, though sectors like financials and utilities managed to show relative resilience. Investor confidence received some support from the Bank of England’s decision to maintain its main policy rate in the prior month, which provided stability against a backdrop of global volatility.

Asia Emerging

Emerging markets in Asia faced notable challenges during October with the MSCI Asia ex-Japan Index falling 4.5% over the month. The Chinese equity market continued to struggle due to ongoing trade tensions, a property market downturn, and demographic challenges. The MSCI China Index was down 5.9% for the month, weighed down by weak economic data and investor concerns about policy effectiveness. However, some markets in the region, particularly in Southeast Asia, managed to provide stronger performance, benefiting from a weaker U.S. dollar and the prospect of rate cuts by the Federal Reserve, which helped improve the outlook for capital flows into emerging markets.

Commodities

Commodity markets experienced a volatile month, reflecting broader global economic uncertainties. Oil prices retreated due to concerns over weaker demand from China and broader economic slowdown fears. The Bloomberg Commodity Index fell 1.9% for the month, with significant declines in industrial metals like iron ore. On the other hand, gold prices found support from the anticipation of Fed easing and geopolitical uncertainties.

Conclusion

October 2024 was marked by some degree of a correction but ultimately resilience was seen across several markets. While initial concerns over economic growth and geopolitical risks caused market movements, the outlook for rate cuts by major central banks, particularly the Federal Reserve, helped stabilise many asset classes. Going forward, investors will likely remain focused on central bank actions, economic data, and geopolitical developments, all of which will play crucial roles in shaping market performance for the remainder of the year.

Outlook on U.S. Economic Policy Under a Trump Presidency

With Donald Trump’s victory in the recent U.S. presidential election, markets and investors are turning their attention to the anticipated economic policies his administration might implement. Reflecting on Trump’s previous term and statements made during his campaign, there’s a strong expectation for policies centred on tax cuts, deregulation, and a pro-growth agenda designed to stimulate domestic industries. Such policies, while potentially beneficial for several key sectors, are likely to introduce shifts in trade relations and regulatory frameworks, impacting both the U.S. and global markets in significant ways.

Focus on Tax Cuts and Deregulation

Trump’s previous tenure was marked by a series of corporate tax reductions and deregulatory measures, aimed at encouraging private investment and business expansion. Under the current environment, another Trump administration would likely seek to replicate these strategies. Analysts anticipate further tax cuts that would reduce corporate burdens, particularly benefiting industries such as energy, finance, and manufacturing, which have historically profited under lighter regulatory oversight. For instance, the energy sector, heavily impacted by Biden-era restrictions, might see eased regulations, fostering expansion and profitability. Such policies could potentially increase corporate earnings, supporting stock market growth in these sectors and stimulating broader economic activity.

Trade and Tariff Policies: A Potential Return to Protectionism

One of the most anticipated shifts in policy under Trump’s leadership pertains to trade, specifically the U.S.-China relationship. Known for his assertive stance on trade, Trump may pursue a more protectionist agenda, potentially reintroducing tariffs or increasing scrutiny on foreign entities. This could impact multinational supply chains, increase operational costs for companies reliant on foreign trade, and create volatility in sectors with high global exposure, such as technology and automotive manufacturing. Conversely, Trump’s policies might favour domestic industries with limited reliance on international markets, possibly fostering stable growth within U.S.-centric industries.

Monetary Policy Outlook: A Push for Accommodative Measures

Historically, Trump has favoured a more expansionary policy stance, advocating for lower interest rates to spur growth. Under his presidency, there could be increased pressure on the US Federal Reserve (Fed) to adopt accommodative policies, potentially leading to rate cuts aimed at stimulating the economy. This approach would have varied implications across asset classes. Fixed-income investors might see a more dynamic bond market, with potential rate cuts driving demand for long-duration bonds, which traditionally perform well in a declining rate environment. Sectors like technology and small-cap stocks, often reliant on affordable financing, may benefit from lower borrowing costs, boosting investment and expansion opportunities.

Implications for the Energy Sector

Trump’s deregulation efforts could translate into tangible gains for the U.S. energy sector, a significant part of his previous administration’s policy agenda. The Biden administration’s emphasis on clean energy initiatives and climate policy brought in a more stringent regulatory environment for traditional energy producers. A Trump administration would likely reverse these policies, offering new avenues for growth in oil and gas while potentially revamping infrastructure to support fossil fuel extraction and distribution. This shift could benefit energy producers, with some expecting increased investments in oil and gas operations, potentially leading to enhanced profitability and a positive impact on stock performance in this sector.

As investors prepare for a Trump-led economic policy environment, the outlook remains cautiously optimistic for sectors poised to benefit from deregulation and tax incentives. However, the administration’s approach to trade and monetary policy could bring a degree of added risk, particularly for companies with substantial international exposure. For fixed-income and equity investors alike, a diversified portfolio strategy that balances exposure to different asset classes, regions and sectors is likely the most prudent way forward.

Sources

"Tech stock sell-off wipes out Wall Street's October gains," Financial Times, November 1, 2024. Financial Times

"The Market Tricked Investors. Now Comes the Treat," Barron's, November 2, 2024. Barron's

"All assets posted negative returns in October apart from gold, silver and oil, Deutsche Bank says," MarketWatch, November 2, 2024. MarketWatch

"Foreign investors fear India's stock market boom may be over," Financial Times, November 4, 2024. Financial Times

"Jobs Report: Fed Rate-Cut Odds Jump As Hiring Stalls Amid Strike, Hurricane; S&P 500 Rises," Investor's Business Daily, November 2, 2024. I

Reuters, accessed November 2024

Financial Times, accessed November 2024

JP Morgan Insights, accessed November 2024