October proved to be a spooky month for the markets. The negative returns were a result of mixed corporate earnings, macroeconomic data, and geopolitical tensions.
October Market Performance:
- Bonds:
- VAB – Canadian Aggregate Bond Index ETF: -0.1
- VBU – US Aggregate Bond Index ETF: -1.7
- VBG – Global ex-US Aggregate Bond Index ETF: -0.2
- Equity:
- S&P500: -2.2%
- DOW: -1.2%
- TSX: -3.0%
- FTSE100: -3.8%
- NASDAQ: -2.2%
Q3 2023 earnings season was a mixed bag. Many companies showed solid growth over the last three months in certain business areas but missed estimates in other areas. The market focused on the missed estimates and reacted negatively to that news coupled with the fear of higher future costs (because of higher-for-longer interest rates) eating into revenues. As an example, Google’s parent company Alphabet reported that total earnings beat estimates, but its cloud revenue rose $8.4B and fell short of analyst’s estimates of $8.6B. This resulted in the Alphabet’s stock price falling -9.5% on Oct 24th.
On the macroeconomic side of things, the US GDP (Gross Domestic Product) rose by 4.9% in Q3. This is the most since 2021 and beat market estimates of 4.3%. This increase in GDP was led by strong consumer spending on things like housing, utilities, health care, insurance, and food services. On the one hand, this reading can show that the economy has been resilient in the face of rising inflation. But the markets don’t necessarily like this kind of a reading because it can be interpreted that the massive interest rate increases we have lived through thus far haven’t yet fully worked their way through the economy to slow things down. As a result, interest rates might need to be kept higher for longer than the market would like.
The other driver of the market movement last month was the latest conflict between Israel and Palestine, which began after more than 1,300 Israeli civilians were killed and abducted by Hamas on October 7th, 2023. This recent conflict and tragic loss of innocent life stirred the markets as all major geopolitical events do. The most significant market driver stemming from this conflict is the unknown variable as to whether the fighting will spread across the Middle East and disrupt global oil production. As of this writing on October 30th, the fighting has remained localized and Crude Oil is down -9% since October 1st. When assessing your investments during times of geopolitical events, it is vital to remember that there is always an initial market reaction, but over time, the event’s effect on the market dissipates.
