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CurAlea Associates LLC is an independent risk and due diligence advisory firm focused on hedge funds and family offices.

Monday, November 3, 2014

October 2014 - Monthly Market Commentary


October was a month of heightened volatility across asset classes as risk assets corrected in the first half of the month on concerns over European economic weakness, ISIS, and ebola, but largely recovered into month end as strong Q3 earnings and a drop in ebola and ISIS news headlines helped to assuage markets.  With regard to global central banks, the ECB disappointed investors to start the month, the Federal Reserve met expectations by ending QE3, and the BOJ surprised markets on Halloween by boosting its annual target for asset purchases.  The US monthly jobs report was stronger than expected, showing that employers added 248,000 jobs in September, with the unemployment rate falling to 5.9%.
Global M&A activity notably slowed in October from the robust levels seen earlier this year; one deterrent to deal activity has been the recent US government crackdown on tax inversions.  Notable deals or bids that were derailed in October included AbbVie’s $52 billion acquisition of Shire and Iliad’s bid for T-Mobile US.  Announced deals included Berkshire Hathaway’s purchase of Van Tuyl Group, Becton Dickinson’s $12 billion acquisition of CareFusion, Endo International’s $2.6 billion purchase of Auxilium Pharmaceuticals, Targa Resources Partners’ $7.7 billion acquisition of Atlas Pipeline Partners, GE’s $1.8 billion purchase of Milestone Aviation Group, Qualcomm’s $2.5 billion acquisition of CSR, Southwestern Energy’s $5.4 billion purchase of Chesapeake Energy’s Marcellus and Utica shale assets, and ONEOK’s $800 million acquisition of Chevron’s Permian Basin pipelines.
Developed market equity markets were mixed in October (see page 7).  Italy (-5.1%), France (-3.6%) and Spain (-3.1%) suffered the biggest losses; Hong Kong (+6.7%), Australia (+4.8%), and the S&P500 (+2.4%) saw gains.  US small caps outperformed, with the Russell 2000 up 6.6%, while the Russell 1000 was up 2.4% (see page 3).  Utilities (+8%), Health Care (+5.4%), and Industrials (+3.7%) were the best performing US sectors, while Energy (-2.9%), Materials (-2.5%) and Telecom (+0.9%) were the worst performing (see page 2).  Large cap growth (+2.6%) outperformed large cap value (+2.2%) in October (see page 3).  Emerging Market equities were mixed in October (see page 8), with the biggest gains in Russia (+4.6%), China (+4.2%), and India (+3.3%) and the biggest losses in Korea (-1.9%), the Philippines (-0.5%), and Indonesia (-0.5%).  
In currencies, the USD Index strengthened 1.1% in October (see page 9).  The weakest developed market currencies against the USD were the Norwegian Krone (-4.9%), the Swedish Krona (-2.4%) and the Japanese Yen (-2.4%).  The USD was mixed against emerging market currencies with the biggest gains against the Russian Ruble (-8%), Korean Won (-1.4%), and Brazilian Real (-1%).
US Treasury yields decreased across the curve in October (see page 11).  10 year rates closed the month at 2.34%, down from 2.49% at September month end.  Investment grade and high yield credit spreads recovered mid-month losses in October (see page 12); European sovereign spreads widened and 2 year US swap spreads tightened (see page 13).
In commodities, the GSCI index fell 6% in October (see page 10), with losses in Energy (-9.7%), Precious Metals (-3.6%), and Livestock (-1.2%); gains were seen in Agriculture (+8.8%) and Industrial Metals (+1.6%).  Within individual commodities, Cocoa led losses (-12.2%), followed by Crude Oil (-10.9%), Gasoline (-10.5%), and Brent Crude (-9.9%); Corn (+17.5%), Soybeans (+13.9%), Wheat (+11.5%), and Aluminum (+5.4%) gained; Gold fell 3.3%.
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