After a rocky start markets have a good October.
Stock markets had a rough start to the month, falling sharply on several days. However, by the end of the month, all major classes of stocks were up. Bucking the recent trend, international stocks led the way. Emerging- market stocks rose by 4.22 percent and developed-market stocks by 3.59 percent (MSCI Emerging Market and EAFE indices). At home, large caps were up by 2.17 percent and small caps by 1.95 percent (S&P 500 and 600 indices). Bonds were also up: the Bloomberg Barclays Aggregate Index closed up by 0.3 percent. There was a burst of volatility early in the month, but markets quieted down afterwards. There were five days on which the S&P moved by more than +/-1 percent, and they were all in the first nine trading-days of the month.
Why it happened.
Early in the month, political events and economic news unsettled the markets. Data on manufacturing was unexpectedly poor, sending markets down. A few days later, jobs data was better than expected, sending them up again. The seemingly endless Brexit saga took a negative turn, and there were new concerns about a US/China trade deal.
But in the middle of the month, there was optimism about a trade deal and the possibility of a Brexit deal (although there’s now going to be a general election in the UK), sending stocks higher.
Central bank actions later in the month didn’t ruffle markets. The European Central Bank left interest rates unchanged. The US Federal Reserve cut interest rates by 0.25 percent but signaled that there may not be future cuts. Both moves were viewed as likely by markets, which didn’t move significantly in response.
In this month’s sidebar, we look at how markets move in response to surprises, not to what’s expected.
What this means for you.
This was a month in which all the major asset classes rose. This means your portfolio is likely to have risen too. Stocks are generally riskier investments than bonds, and they rose more this month. This means that portfolios with greater risk exposure will have tended to fare better than lower-risk portfolios. Your portfolio will have greater risk exposure the further you are from retirement or the higher your risk preference. As always, be sure to review your portfolio, or speak with your advisor, to make sure your level of risk matches your objectives.
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