Market Commentary - October
Glenmore Asset Management
Globally equity markets declined in October. In the US, the S&P 500 fell -2.2%, the Nasdaq declined -2.8%, whilst in the UK, the FTSE 100 fell -3.8%. The main drivers of the declines were ongoing high inflation, rising bond yields, and the conflict in the middle east.
In Australia, the All Ordinaries Accumulation Index fell -3.9% in October. Gold was the top performing sector, whilst technology and healthcare were the worst performers, both of which were impacted by higher bond yields. Small caps again underperformed as investor risk aversion increased, with the Small Ordinaries Acc. Index declining -5.5%, whilst the Small Industrials Acc. Index fell -7.0%. Bond yields rose in October, in the US the 10-year bond yield rose +30 basis points to close at 4.84%, whilst its Australian counterpart climbed +44bp to 4.92%.
Investor sentiment continues to be impacted by the issue of high inflation and rising interest rates. We believe equity markets (being very forward looking) will respond positively to signs that central banks (particularly the RBA in Australia) are being more aggressive in their commitment to reduce inflation to targeted levels. Currently we expect one to two more interest rate rises in Australia in this current cycle, but this will be dependent on the path of inflation in the next 6- 12 months. Despite the current negativity impacting the ASX and in particular small/mid caps stocks, we do believe the bulk of the interest rate rises have been implemented in this cycle and hence once there is more clarity on the number of rate hikes remaining, equity markets are well placed to perform strongly.
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