Progress in both stock and bond markets in October
The performance on the stock market has been good since April, and it continued in October with a return of a solid four percent. Since this time last year, global stocks have risen by 8.8 percent. This is mainly due to the performance of stocks from emerging markets, from Japan, and from technology and biotech stocks—especially the large Magnificent-7 stocks in the USA. Danish stocks grew by 3.5 percent but are still slightly behind and are negative for the entire year, mainly due to the decline in Novo stocks. Non-investment grade stocks are also, on the whole, slightly behind the market performance, although health-related stocks are seeing increased interest from investors.
The interest rate drop in the USA led to slight positive returns on bonds in October—both on government, mortgage, and corporate bonds. The best returns, however, were once again on bonds from high-yield countries. The return in October was 1.9 percent, which is 10.6 percent higher compared to this time last year.
The price of metals set a new record in October but then reversed and ended up falling at the end of the month along with cryptocurrencies. Oil prices remained low, while the dollar strengthened.
Why? Satisfactory earnings, biotech optimism, trade truce, and shifts
Many strong earnings reports for the third quarter helped sustain the positive momentum in the stock markets. Confidence in the growth of the biotech industry was also confirmed with larger investment plans in the most recent earnings reports from major US tech giants.
The year-long ceasefire in the trade war between the USA and China has also made a positive impact. In recent weeks, large and numerous private equity investments have been shut down, which has created some uncertainty in the stock market. Fewer positive signals from the US Federal Reserve have also played a role. The Chairman of the Federal Reserve, Jerome Powell, has clearly indicated that he believes investors expect fewer interest rate cuts from the Fed in the coming year.
The US government shutdown has led to several key economic data points, which could indicate how things are going in the US, being released later than usual.
Although uncertainty has increased, most still trust in a soft landing for the economy as a macroeconomic scenario. This is the so-called “Goldilocks” scenario, where both the stock and bond markets perform well.
Investors will, therefore, be closely watching whether rising inflation or slowing growth will disrupt the current positive momentum.