Market Commentary October 2021

Global equity markets delivered strong gains in October, supported by another month of encouraging corporate earnings. In the US, more than 80% of companies beat consensus earnings expectations and all 11 sectors in the S&P 500 reported year-on-year earnings growth, led by energy and materials firms.

There were notable disappointments from Apple and Amazon, with the firms citing supply disruption and labour shortages. But, these individual earnings misses, the S&P ended the month up an impressive 5.2% in sterling terms.

In the UK, equities rose 1.8%, with financials among the strongest performing FTSE sectors. UK banks and insurers benefitted from expectations that the Bank of England would react to rising inflationary pressures by increasing interest rates. However, after month end, the Bank’s Monetary Policy Committee voted 7-2 to keep its benchmark interest rate unchanged at 0.1%.

By contrast, Japanese equities fell around 5.5%. The uncertainty of a general election was a key driver of the losses, which took place on 31 October. With these now concluded, and the ruling Liberal Democratic Party retaining its majority, attention now shifts to agreeing upon a substantial fiscal package.

Like equities, fixed income markets saw significant movement in the month. Bottlenecks in the global supply chain and soaring energy prices continue to put pressure on inflation.

The US Federal Reserve has been signalling its desire to taper its QE program to a full stop by the middle of 2022 and continues to believe that the elevated inflation figures are transitory.

As a result, we saw a sharp increase in yields among shorter maturity sovereign bonds, but lower yields in longer-dated bonds. In the UK, for example, the 2y gilt rose from 0.41% to 0.71%, while the 30y gilt yield fell from 1.4% to 1.2%. This led to a 2.2% gain from the index in the month.

Finally, the rising inflation fears did not provide a significant boost to gold prices, with the precious metal flat in sterling terms over the month.