Market Review October 2018
October once again proved to be a difficult month for this aging bull market with the S&P 500 recording 16 down days throughout the month, equalling its worst month run since April 1970.
The recent decline has been partly sparked by a series of concerns ranging from slowing global growth, interest-rate hikes by the Federal Reserve to a U.S. economy that is in its 10th year of expansion.
The frequency of down days for the S&P 500 comes after prolonged spells of tranquillity in the US markets, which year to date, had managed to seemingly distancing itself from the market uncertainty that has took hold of the other global economies.
The bearish turn for the market wiped out year-to-date gains for the S&P 500 and created a significant level of uncertainty in the market despite a US economy that continues to show vitality.
The US was not the only region affected with Europe and Asia also seeing sharp declines as contagion risk extended the year to date declines in these regions.
As we left October behind, the US mid-terms took centre stage and in a widely-expected outcome, the midterm elections concluded with the Democrats gaining a majority in the House of Representatives, while the Republicans maintained control of the Senate.
With a cloud of uncertainty lifted and Trump indicating that he is willing to work with Democrats on policy initiatives, the initial reaction from markets has been largely positive, with the S&P 500 and MSCI world advancing approximately 1%. Tech stocks led the rebound as a divided Congress is likely to hamper Trump from going after tech giants like Amazon for being too big and influential on the economy.
Looking forward to the rest of the year, history shows that the markets react positively to a split congress with the S&P 500 averaging an annual return of 8.6% when Republicans control the White House and Democrats lead Congress.
Closer to home, Brexit uncertainty remains, with Ireland’s EU Commissioner announcing that a summit to finalise a Brexit deal is now unlikely to be held until December, pointing to further slipping in the negotiating timetable. Despite this, reports on Thursday afternoon suggested a deal was now in the works and leaders were preparing for a summit in late November, possibly on the 25th day of the month.
In reviewing global economic indicators, the Global Purchasing Manager Index remains robust across all regions and forecasts of economic growth remain positive. While recent volatility can be unsettling and market sentiment is now more cautious these falls can also prove to be tremendous long term opportunities for investors, global share prices in some regions are now lookingextremely attractive on a historic pricing basis and with the global economy forecasted to continue its growth we are maintaining a similar stance on our current client portfolios. Please contact your adviser if you wish to discuss this in more detail.
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INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.
THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.
PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.