October was a mixed month for global risk assets, as strong global Q3 GDP reports were offset by growing concerns about renewed economic shutdowns amid a coronavirus resurgence. In equities, emerging markets, value, and small caps outperformed, while the oil complex sold off sharply, the US dollar index strengthened slightly, and the US yield curve steepened. The US GDP report showed a 33.1% annualized Q3 economic expansion following a 31.4% Q2 plunge; Europe, meanwhile, rebounded 12.7% following an 11.8% Q2 contraction., and China reported a 4.9% Q3 GDP increase. Congress and the White House failed to agree on an additional stimulus package, despite warnings from Federal Reserve Chairman Powell that such a delay could “lead to a weak recovery, creating unnecessary hardship for households and businesses”; the Fed’s next policy meeting comes just after the November 3 US presidential election. The September US jobs report showed that 661,000 jobs were added during the month, the unemployment rate fell to 7.9% (from 8.4%), the labor force participation rate fell to 61.4%, average hourly earnings increased 4.6% from the prior year, and the total labor force fell to 160.1 million, of which 147.5 million were employed.
Developed market equities moved mostly lower in October, (see page 8) with gains only in Australia (+2.1%), and the largest losses in Germany (-9.7%), Italy (-6.9%), and the UK (-5.1%). US large caps underperformed small caps, with the Russell 2000 up 2.1%, and the Russell 1000 down 2.4% (see page 3). The best performing S&P 500 sectors in October were Utilities (+5%), Communication Services (+0.8%), and Materials (-0.8%), and the worst performing were IT (-5.1%), Energy (-4.4%), and Healthcare (-3.7%). Large cap growth (-3.4%) underperformed large cap value (-1.3%) in October (see page 3). Emerging market equities were mixed (see page 9), with the biggest gains in the Philippines (+7.8%), Indonesia (+6.8%), and China (+5.2%), and the biggest losses in Russia (-6.6%), Thailand (-3.9%), and Korea (-2.4%).
In currencies, the USD Index strengthened slightly in October (see page 10), with the largest gains against the USD seen in the Japanese Yen (+0.8%), Swedish Krona (+0.6%), and Swiss Franc (+0.4%), and the largest losses in the Norwegian Krone (-2.1%), Australian Dollar (-1.9%), and Euro (-0.6%). Emerging market currencies were mixed against the USD, with the biggest gain in the Mexican Peso (+4.4%), South African Rand (+3.1%), and Korean Won (+2.5%), and the biggest losses in the Turkish Lira (-7.5%), Brazilian Real (-2.4%), and Russian Ruble (-2.3%).
The US interest rate curve steepened in October (see page 12). 10 year rates closed the month at 0.87%, from 0.68% at September month end. US investment grade spreads widened, while high yield spreads were little changed (see page 13).
In commodities, the GSCI index fell (-3.6%) in October (see page 11), with gains in Agriculture (+3.8%) and Industrial Metals (+2.8%), and losses in Precious Metals (-0.7%), Livestock (-1.7%), and Energy (-9%). Within individual commodities, Natural Gas (+13.3%), Sugar (+6.3%), and Aluminum (+5.3%) saw the biggest gains, while Crude Oil (-11.6%), Brent Crude (-11.3%), and Gasoline (-10.7%) saw the biggest losses. Gold was down 0.8% in October.
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