Original thinking | 12 November 2024

October market news and views

Chris Robinson

, Nick Kelsall

, David Thornton

& Ian Rees

Read the latest monthly update from Premier Miton’s managed portfolio service investment team, covering October – and a bit of November.

For information purposes only. Any views and opinions expressed here are those of the author at the time of writing and can change; they may not represent the views of Premier Miton and should not be taken as statements of fact, nor should they be relied upon for making investment decisions.

Investing involves risk. The value of an investment can go down as well as up which means that you could get back less than you originally invested when you come to sell your investment. The value of your investment might not keep up with any rise in the cost of living.

Investment Advice. Premier Miton is unable to provide investment, tax or financial planning advice. We recommend that you discuss any investment decisions with a financial adviser.

Please refer to the glossary at the end of the document.

In brief

UK Budget increases government bond yields (lowers prices).
US economic data, combined with election uncertainty leads to inflation risks.
Gold continues to shine!

November in brief: three themes driving US financial markets

What a difference a month can make in financial markets. We have the US election result now, so it would be strange not to comment on market moves at the start of November before reviewing October in full.

So far the US financial markets’ response to the news of Donald Trump as their President has been very positive. The S&P 500 Index rose 2.5% on the day of the result, and the Russell 2000 Index, the US smaller companies index, rose by more than 6%. There are three potential benefits to US companies which explain this market reaction; government spending, deregulation and lower taxes. Trump has made it clear that the likes of Elon Musk will be part of his team, and if Elon repeats some aggressive slimming down tactics he displayed at X (previously Twitter), the US civil service could well be in the firing line. Changes to spending and taxes are harder to implement quickly, but the Republican control of the upper and lower houses means that changes could be a lot easier to carry off than in 2016 at the start of Trump’s first term. This could mean significant benefits to US companies large and small but may also lead to higher than previously expected inflation pressures.

We feel this has been noted by bond (or fixed income) markets that have moved in the opposite direction. Government bond prices have fallen while yields have risen – a clear reflection of a widening government debt burden and the risk of a ramping up in Republican spending. A note of caution in terms of the fixed income market moves in recent weeks which have reflected growth and inflation: there have been a number of times in recent years when bond yields moved quickly (upwards) and the price of company shares (equities) struggled to increase significantly in the following weeks.

October: Japan and US strengths, the UK Budget, emerging markets and gold

In the month of October there was only one equity region that experienced positive returns in local currency: Japan. The strengthening of the Dollar and weakening of the Yen provided a boost once again to Japanese companies. Japan has a significant number of global manufacturers within technology, automotives and industrial sectors selling goods to the US. Whilst a weakening currency has benefitted the pricing of Japanese goods in the US, the strength of economic data from the US has been a major factor in driving the equity market moves. Positive signals have been clear; inflation has been trending down, albeit above the central bank targets, retail sales have proved positive despite the impacts of hurricane activity that should have slowed momentum, while new home sales continue to signal consumers’ appetite to borrow. It was of course these economic data points have that led to government bond yields, the rate the government pays to borrow over various time horizons, rising to a similar degree as we’ve seen in the UK. This saw the S&P 500 Index in local currency terms down -0.9% during the month. The US equity market is the largest proportion of our equity allocation, so this benefitted the portfolios.

Whilst the US and Japan stock markets provided good news for investors, the UK market struggled on the back of the Autumn Budget. The FTSE 100 Index fell -1.5% and the FTSE 250 Index was down -2.9% over the month, with UK government bond yields rising significantly. Increased spending has been met by higher taxation for UK companies, specifically through national insurance and the minimum wage. The Budget provided more uncertainty on the debt profile for the UK government and less certainty on economic growth. The Office for Budget Responsibility (OBR) and the Office for National Statistics (ONS) predicted lower economic growth and inflation in coming years. These are of course forecasts and are never that accurate. When looking at the recent economic backdrop it’s been clear the UK consumer has been very resilient, like its US counterpart. We continue to see the UK in a more favourable light even on the back of this Budget, as attractive valuations, share buybacks – repurchases reducing the number of shares in the market, and positive US growth support company earnings. FTSE 100 companies receive over 50% of earnings from the US, so the US economic backdrop remains positive for UK companies.

Emerging market equities fell slightly during the month, lagging other markets. The strength of the Dollar means rising costs of dollar-denominated debt in developing countries. The FTSE China Index also fell (-1.5%) in sterling following incredible increases in the previous month. Investors hoped the National People’s Congress meeting this month to decide further stimulus, alongside the expected rate cuts, would be more positive.

Whilst regional equities and government bonds fell during the month, it was gold that saw a sustained increase in prices – it rallied +8.3% in sterling terms, reflecting the risk to inflation in the US, as well as a sign that investors are acting with caution in an environment of political change. While risk is evident there also remains opportunity, and our investment committee met to review positions within the portfolios that have increased in value, as well as discuss opportunities for the fourth quarter. We will update you soon on the changes.

What a difference a month can make in financial markets.

Key positioning

The portfolios’ investments in equities benefitted from the dollar strength during the month. US equities remains one of our larger allocations.
The portfolios’ lower allocations to UK and US government bonds limited the impact as bond prices fell during the month.
The portfolios’ large allocations to companies listed in Japan was a real benefit, as it rallied on the back of a depreciating Yen and a rising equity market.
The portfolios’ smaller allocation to European investments was marginally beneficial, with the larger allocation to the UK offsetting this benefit.

Risks

Investing involves risk. The value of an investment can go down as well as up which means that you could get back less than you originally invested when you come to sell your investment. The value of your investment might not keep up with any rise in the cost of living.

The performance information presented on this page relates to the past. Past performance is not a reliable indicator of future returns.

The share price of companies (equities) can experience high levels of price fluctuation.

Government and corporate bonds generally offer a fixed level of interest to investors, so their value can be affected by changes in interest rates. When central bank interest rates fall, investors may be prepared to pay more for bonds and bond prices tend to rise. If interest rates rise, bonds may be less valuable to investors and their prices can fall.

Forecasts are not reliable indicators of future returns.

Some of the main specific risks that apply to the funds that these portfolios invest in are summarised here. If the funds that are held in the portfolios change, the types of investment risk that the portfolios are exposed to will also change.

Fixed income investments, such as bonds, can be higher risk or lower risk depending on the financial strength of the issuer of the bond, where the bond ranks in the issuer’s structure or the length of time until the bond matures. It is possible that the income due or the repayment value will not be met. They can be particularly affected by changes in central bank interest rates and by inflation.

Equities (company shares) can experience high levels of price fluctuation. Smaller company shares can be riskier than the largest companies, companies in less developed countries (emerging markets) can be risker than those in developed countries and funds focused on a particular country or region can be riskier than funds that are more geographically diverse. These risks can result in bigger movements in the value of the fund. Equities can be affected by changes in central bank interest rates and by inflation.

Derivatives may be used within funds for different reasons, usually to reduce risk, which can be called “hedging”. This can limit gains in certain circumstances as well. Derivatives can also be used to generate income or to increase the risk being taken, , which can have positive or negative outcomes. The derivatives used can be options or futures which are types of contracts that are dealt on an exchange or negotiated with a third party. More complex derivatives may also be used. Derivatives can also introduce leverage to a fund, which is similar to borrowing money to invest.

Funds may have holdings in investments such as commodities (raw materials), infrastructure and property as well as other areas such as specialist lending and renewable energy. These investments will be indirect, which means accessing these assets by investing in companies, other funds or similar investment vehicles. These investments can also increase risk and experience sharp price movements. Funds focused on specific sectors or industries, such as property or infrastructure, may carry a higher level of risk and can experience bigger movements in value. Certain investments can be impacted by decisions made by third parties, such as governments or regulators.

There are many other factors that can influence the value of a fund. These include currency movements, changes in the law, regulations or tax, operational systems or third-party failures, or financial market conditions that make it difficult to buy or sell investments for the fund.

Funds that are managed to maintain a specific risk profile, or that invest in other funds that themselves are managed to maintain a specific risk profile, may have their potential growth or income constrained as a result.

Glossary

Bonds (or fixed income)

Types of investments that allow investors to loan money to governments and companies, usually in return for a regular fixed level of interest until the bond’s maturity date, plus the return of the original value of the bond at the maturity date. The price of bonds will vary, and the investment terms of bonds will also vary.

Bond yield

This is calculated by taking the level of interest paid by the bond, divided by the price of the bond, expressed as a percentage. As the price rises, the yield falls and vice versa.

Government bonds

A type of bond, issued by a government. They pay out a regular fixed amount of interest until the bond’s maturity date, when the issue value of the bond should also be repaid. In the UK they are called gilts and in the US they are referred to as treasuries.

Volatility

A measure of the frequency and severity with which the price of an investment goes up and down.

Yield (also see bond yield)

The dividend per share divided by the stock’s or fund’s price per share and expressed as a percentage. The historic yield is the dividend income distributed during the past year and expressed as a percentage of the share price on a particular day.

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Reference to any investment should not be considered advice or an investment recommendation.

All data is sourced to Premier Miton unless otherwise stated.

Source for performance data: FE Analytics.

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