Global equities continued to march higher over October and delivered a strong return – for the sixth consecutive month. Bonds also delivered a solid return meaning diversified funds performed well. A number of regional or national equity markets made new all-time highs on the back of another solid quarterly earnings season and more rate cuts from the US Federal Reserve and other central banks.
The MSCI ACWI (NZD Hedged) was up 2.7% and is up over 21% on a rolling 1-year basis. The NZ dollar was weaker over the month versus the US but stronger against other majors, meaning the MSCI ACWI Index (NZD unhedged) was up 3.7% (+27.5% rolling 1-yr). Global bonds (hedged to NZD) delivered a solid gain of 0.7%, whereas NZ bonds outperformed this with a 0.8% return, and are now up over 8.5% for the last 12 months.
Corporate earnings season was a positive driver of market sentiment over October, with US companies again the standout. A number of the US-based mega Cap names reported solid results, and these were generally viewed positively as reflected in Information Technology being the standout sector in terms of monthly returns. The speed and breadth of the build-out of the AI-ecosystem continues to be a focus for investors. A lot of the forward guidance and planned capital expenditure is related to AI and how it is going to be integrated into a variety of industries and businesses.
The key piece of economic data was the US inflation reading that was on the softer side. The US Federal Reserve cut short-term interest rates for a second straight month but refrained from giving clear guidance on whether they expected to deliver more rate cuts before year end. The decision drew two dissents from voting members, one preferring to hold rates steady and one suggesting a larger cut was warranted.
The tech-heavy US equity market did well in October but returns in Europe and the UK were also strong. Japanese equities delivered the strongest return due in part to the unexpected victory of Sanae Takaichi in the Liberal Democratic Party leadership election early in the month. Takaichi is expected to promote "Abenomics"-style fiscal and monetary policies, igniting a "Takaichi trade" - that is strengthening Japanese stocks, rising bond yields, and a weaker yen.