Market Analysis Oct 2020

US equities faced a downturn in October as rising Covid-19 cases and uncertainty surrounding the election impacted the market. The outlook for further fiscal stimulus remained uncertain, contributing to market fluctuations. The unpredictability of the election on November 3 added to the overall sense of uncertainty. President Trump suggested potential stimulus after the election if reelected.

Manufacturing and service sectors showed expansion, and initial jobless claims reached their lowest since March. However, the Federal Reserve stuck to its stance of maintaining rates until inflation settled at 2%, with some tolerance for overshooting. The Fed also stressed the need for additional fiscal stimulus.

Sectors like utilities and communications posted modest gains, while technology, energy, and healthcare struggled. The market sentiment remained sensitive to news surrounding stimulus measures and election developments.

Eurozone equities declined in October as several countries re-imposed lockdowns to combat rising Covid-19 infections. Despite a Q3 2020 economic expansion of 12.7%, the region's economy remained 4.3% smaller than the previous year. The reintroduced lockdowns are expected to impact economic activity in the coming months. The Markit composite PMI fell to 49.4 from 50.4 in September, indicating business activity contraction. However, annual inflation remained stable at -0.3%.

Q3 corporate earnings largely exceeded expectations, but all sectors ended the month with losses. The information technology sector saw the sharpest decline, and energy struggled due to reduced oil demand. The European Central Bank indicated possible stimulus measures to be announced in December.

UK equities faced declines in October amid renewed Covid-19 concerns. Various regions of the UK introduced lockdowns, with England enforcing uniform restrictions from November 5th to December 2nd. The government extended the Coronavirus Job Retention Scheme until December, providing employees with 80% of their salary for hours not worked.

The Bank of England's November policy meeting was anticipated to extend quantitative easing, and negative interest rates were discussed. The market reacted to Covid-19 developments and economic support measures.

Japan's equity market saw a decline of 2.8% in October, partly due to a stronger yen against the US dollar. Small cap stocks underperformed the broader market, and Covid-19's global resurgence impacted investor sentiment. Japan's distinct Covid-19 experience included domestic travel campaigns to support local businesses.

The MSCI Asia ex Japan Index outperformed the MSCI World Index, with Indonesia as the top performer. Factors such as the US presidential election and fiscal stimulus influenced market movements.

October brought mixed performance and volatility to the bond market. Corporate bonds performed well overall despite the impact of Covid-19. The US 10-year Treasury yield rose, reflecting hopes for economic stimulus, while European yields fell due to Covid-19 resurgences and lockdowns. Corporate bonds outperformed government bonds, with US investment grade debt slightly negative but better than US Treasuries. EM bond performance varied, while convertible bonds proved resilient.

Please remember that past performance isn't predictive of future results. The mentioned sectors, securities, regions, and countries are for illustration purposes only and shouldn't be considered as recommendations to buy or sell.