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October lived up to its reputation for a high level of volatility once again, with the Dow Jones and S&P 500 Index opening the new quarter with the biggest losses since the major financial crisis of 2008. These were prompted by market players’ growing fears of a recession sparked by weak manufacturing data from the US, the world’s leading economy. However, the concerns proved short-lived. On the one hand, employment figures were sufficiently healthy to ease the jitters over a recession somewhat; on the other, they were not strong enough to deter the Federal Reserve from cutting interest rates once again. The recovery on the stock markets was also buoyed by constructive US/China trade talks. “Phase one” of a trade deal is set to be signed as early as November, which could see the Chinese making monthly purchases of US farm products totalling USD 20 billion overall. The central banks sprang few surprises, delivering what the markets were already expecting. The Fed persuaded investors that interest rate hikes would be unlikely before inflation rose and that no further rate cuts were to be expected for the time being. A Brexit deal was passed in the British Parliament after three years of wrangling. The timing of the UK’s departure has yet to be determined, however, and the Prime Minister wants to hold a general election to secure a speedy exit. With the EU having extended the deadline once again, a hard Brexit now seems highly unlikely. 

Stock markets

The Dow Jones closed out the month under review up by half a percentage point, while the S&P 500 and the Nasdaq did even better, hitting new record highs. The corporate reporting season for the third quarter has impressed so far in view of the very low expectations. A general decline in earnings is expected for the first time since 2016, although results are varying from sector to sector. Technology and cyclical industries are suffering the biggest falls, while stable sectors such as healthcare and consumer staples are enjoying healthy growth. The outlook has improved recently for European equities in particular, and Europe is seeing more than its fair share of upward revisions in earnings figures (see FOCUS). Swiss equities gained 1.4 per cent, and the SMI held its ground well above the psychologically important 10,000-point mark. The broad-based European market added just under 1 per cent. Having climbed not quite 15 per cent so far this year, Japan’s Nikkei 225 has been amongst the weaker indices in a global comparison. The index mounted a real charge to make up lost ground in October, however, ending the month up by over 5 per cent. 

Interest rates

The global bond market suffered major price losses. Like the stock market, it too is pricing in faster growth in the future thanks to easing tensions on the trade front and the Brexit situation referred to earlier. Nevertheless, the safe government bonds issued by France, Germany, the Netherlands, Japan and Switzerland are still not offering positive yields on maturity. The increase in yields in the ten-year segment has been strongest in Switzerland at around 21 base points, followed by Germany, where the yields on Bunds jumped 16 base points.


The pound sterling was by far the biggest winner amongst the G10 currencies, rising over 4 per cent against the Swiss franc. Both the Australian and the New Zealand dollar climbed more than 2 per cent. The trade-weighted US Dollar Index lost over 2 per cent due to falling interest rate differentials. The gold price climbed back above the USD 1,500 per ounce mark, while silver is trading at more than USD 18 per ounce once again. The price of palladium continued its upward march, gaining 7 per cent following a September in which it rose 9.3 per cent more or less under the radar.


As we approach the end of the year, many investors retain vivid memories of the very weak stock markets in the final two quarters of 2018. Back then, the markets were weighed down in particular by the Fed’s repeated interest rate rises and the nascent trade dispute, both factors that have now been considerably defused and that are thus offering support to equities. An initial trade deal is likely to give a further boost to the markets and the global economy in our view. The first signs of a cyclical recovery are discernible, though still faint. We increased our equity weighting from neutral to overweight during the past month and are now favouring more cyclical sectors over defensive ones to a greater extent within our sector allocation.

Focus October 2019Market data October 2019