Monthly markets review - October 2022
Kondi Nkosi, Country Head of Schroders South Africa
A look back at October when developed market shares outperformed their emerging market counterparts.
In summary
Developed market shares notched up strong gains in October but emerging markets fell. Chinese equities were weak as the Communist Party Congress signalled no let-up in the zero-Covid policy and reinforced President Xi’s authority. In the UK, bond yields fell (meaning prices rose) as markets welcomed the appointment of Rishi Sunak as prime minister.
US
US equities recovered some ground in October, after several weeks of declines. The rise came in spite of the Federal Reserve (Fed) confirming that tighter monetary policy is still needed to contain elevated inflation. Economic data was also mixed. Industrial data looks set to weaken further at the start of Q4, with the ‘flash’ composite purchasing managers’ index (PMI) falling from 49.5 to 47.3 in October (for the PMI surveys, a reading below 50 denotes economic contraction).
Minutes from the September Fed meeting were released on 12 October. These indicated that central bank officials are agreed that tighter policy is to remain the priority for as long as inflation remains unacceptably high. Specifically, the central bank signalled that the risk of tightening too much far outweighs the risk of doing too little. Chair Jerome Powell has previously conceded that economic pain will be necessary in order to repress inflation adequately.
Investors may have been focused on the earnings season which, at the half-way stage, showed around three quarters of companies having delivered better-than-expected results. All sectors made gains, although dispersion was high. Energy stocks were broadly stronger following especially robust earnings. Some retailers were notably weaker, with investors anticipating pressure on consumer spending.
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