Sabco® Investment's Monthly Market Report - October, 2021

Sabco® Investment's Monthly Market Report - October, 2021

October proved to be a positive month for stocks, with notable achievements in both the US and European markets.

In the US, stocks experienced a rise, with the S&P 500 completely recovering from its September decline and delivering its best monthly performance of the year. The Dow, S&P, and Nasdaq Composite all reached record levels by the end of October. All sectors in the US market closed the month on a positive note, led by consumer discretionary stocks, which saw a 13% increase. Tesla played a significant role in driving the automotive sector with its better-than-expected results, leading to a 43.7% surge in its stock price. Additionally, Hertz's announcement of ordering 100,000 vehicles boosted sentiment around the company. The energy sector also experienced strong gains due to rising energy prices, while software and semiconductor companies performed well within the technology sector. Mega-cap stocks, including Microsoft, contributed to the positive performance, with Microsoft's share price rising over 17% following strong results. Banking stocks outperformed the overall index, while credit cards and the industrial sector faced relative weakness. Beverages stood out as the top-performing subgroup in the consumer staples sector. In the communications services sector, Netflix and Alphabet provided support, although Facebook's stock price declined. Growth stocks outperformed value stocks during the month, and emerging markets once again underperformed US and European equities.

The month of October was heavily influenced by the third-quarter earnings season, during which companies addressed supply chain issues, input cost pressures, and labour market challenges. However, rising demand played a crucial role in supporting profit margins despite increasing costs. A significant majority of S&P 500 companies beat consensus earnings and revenue estimates, indicating strong performance and positive outlooks.

In the bond market, risk-free rates experienced slight increases during October. The German 10-year yield rose from -0.20% to -0.10%, while the equivalent US rate reached 1.70% before retracing slightly towards the end of the month. The yield curve flattened globally, reflecting a shift in central bank rhetoric regarding inflationary pressures. However, despite this shift, central bank officials reiterated that reducing asset purchases was more likely than raising rates. Government bonds, corporate bonds, and inflation-linked government bonds across Europe and the US posted slightly negative performances.

The Federal Reserve did not hold a meeting in October, but the minutes from its September meeting revealed the intention to announce a reduction in quantitative easing at the November meeting. The net purchases are expected to conclude in mid-2022, just before the anticipated first-rate hike in September 2022. The European Central Bank left its key rates unchanged and maintained a slightly lower pace of net asset purchases. The ECB emphasized that financing conditions in the euro area remained favourable and indicated that the conditions for a rate hike were not yet in place. The Central Bank of New Zealand raised rates for the first time in seven years, following the lead of other countries like Norway and South Korea. Several central banks, including the Bank of England, signaled their intention to tighten monetary policy, while the Bank of Canada surprised investors by abruptly halting its bond-buying program. Brazil's central bank also accelerated its monetary tightening due to significant inflationary pressures.

The US dollar remained strong against the euro, while its appreciation against the Japanese yen was more pronounced, reflecting increased risk appetite among investors. However, the dollar depreciated against the British pound and commodity-linked currencies such as the Norwegian krone, Russian ruble, and Canadian dollar. Bitcoin had an exceptional month, marking its best performance since December 2020 with a rise of over 40% and nearing its all-time high of $67,000.

Commodity prices, measured in dollars, increased by just over 5% in October, primarily driven by energy prices. The global energy crisis led to record levels in coal and gas prices, while crude oil demand surged as power plants shifted from gas to oil. WTI crude experienced an 11.4% increase, building on the rally from September. European natural gas prices, which had previously risen significantly, fell towards the end of the month following statements by Vladimir Putin suggesting increased gas exports from Russia to Europe in November. Industrial metals and agricultural commodities also saw gains of approximately 3%, while gold ended the month with a modest increase of 1.5%.