Weekly Market Recap: W/E October 30th 2015

Market Recap

The performance of the major global equity indices was mixed last week, with investors pausing for reflection in what has been an impressive month for returns. 

The economic data was also relatively mixed and on the central bank front the US Federal Reserve put the possibility of a rate hike in December back on the table. After spooking markets with their downbeat message on the global economy in September, the Fed has since backed away from those comments.

Bond yields moved higher over the week on the back of the change in wording from the Fed. The US 10-year treasury yield rose 6bps to 2.15%, while the German 10-year bond yield rose 2bps to 0.53%. Meanwhile, commodity prices bounced last week, with the price of Brent crude oil rising +6.13%, to $46.60 per barrel.

Best October since 2011 for many of the major equity indices….

This past October lived up to the record of historically being the most volatile month for equity markets, delivering a wide range of returns for investors. Since 1900, the October returns for the Dow Jones Industrial Average (DJIA) have ranged from +10.65% in 1982 to -23.22% in 1987, which included Black Monday (October 19^th, 1987) when the index fell -22.61%.

Over the last month, the DJIA jumped +8.47%, slightly below the +9.55% recorded during the Eurozone debt crisis of 2011. The S&P 500 index was up +8.30%, while the tech-heavy NASDAQ Composite jumped +9.38%. The much quoted CBOE Volatility Index (VIX), the so-called ‘fear index’, a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices, dropped by almost -40% in October.

In Europe, the FTSE Eurofirst 300 closed up +8.31% for the month while the standout performer was the German DAX index, rallying +12.32%. In Asia, Japan’s Nikkei 225 index rose +9.75% in October while China’s Shanghai Composite Index of mainland shares gained +10.80%.

The plethora of factors that had investors running for the exits in August and September – commodity prices plunging, turmoil in China and the emerging markets, the loss of momentum in the global recovery, and the prospect of the US Federal Reserve raising interest rates – were put aside in October as central banks once again stepped in to support financial markets.

There are two key takeaways from the October rebound. First, timing markets is a near pointless exercise.  Second, monetary policy continues to be the predominant driver of financial markets. Still, while central banks have provided relief the same issues remain; China is a huge unknown and even last week Janet Yellen confirmed the Fed is still considering a rate hike later this year. It is guaranteed that there will be more tantrums ahead in markets but investors planning for retirement, with a long time horizon, should avoid being overly influenced by the short term noise.

Week Ahead

European equities have opened higher this morning after a mixed session in Asia overnight. Key macro data includes purchasing manager index (PMI) reports from around the globe. In Europe, the latest retail sales data will be released. In the US, the employment situation report will be keenly watched on Friday, providing an update on the labour market, a key indicator for US monetary policymakers.

On the monetary policy front, the Bank of England (BOE) will hold their monetary policy meeting, with no change in policy expected. The Bank of England will also release the minutes from the previous meeting and the latest Quarterly Inflation Report, which sets out detailed economic analysis and inflation projections used in the decision making process when setting monetary policy.

The ‘Special One’ on the edge….

While October was a great month for equity market investors, problems continue to compound for the self-proclaimed ‘Special One’, Jose Mourinho, who was unable to bring his Chelsea team back from the dead over the weekend. An enjoyable moment for Klopp and the LFC faithful.

There is a saying that I think is apt when it comes to Jose’s current predicament: “Be nice to people on your way up because you’ll meet them on your way down”.