Investors remained cautious in October as global equities fell by 2.2% (in USD terms). Political uncertainty ahead of the US presidential election, which had Trump marginally ahead in both the polls and the betting markets at the end of the month, created a risk-off environment. Markets were rightly worried and procrastinated due to the pending crossroads that lay shortly ahead, which would impact growth prospects, the outlook for inflation and subsequently interest rates over the next 4 or more years.

Despite the majority of stock markets falling in local currency terms, the weakness in Sterling over the month softened the blow for UK investors. UK equities fell through October with UK small and mid cap equities underperforming in the run-up to the first Labour budget in 14 years. This sell-off followed concerns that the UK budget had worsened the longer-term UK economic and interest rate outlook. Following the budget, in which Rachel Reeves laid out the plan for a £40 billion tax increase, markets have anticipated UK interest rates will need to be higher for longer in order to offset more persistent inflationary pressures caused by increased government spending.

Following previous record highs, US shares ended lower in October amidst the uncertainty of the presidential election, however, the underlying economic data remained strong. US Q3 GDP (Gross Domestic Product) recorded an annualised growth rate of 2.8%, marking the tenth consecutive quarter of economic growth. Furthermore, inflation measured by CPI fell from 2.5% to 2.4%, and non-farm payroll jobs rose by 254k compared to August’s 159k. Despite the strong economic data, the Federal Reserve deferred any decision to cut interest rates until after the election.

European equities also recorded a loss in October due to weaker economic growth and ongoing trade tensions with China and the US. The European Central Bank (ECB) cut interest rates by 25 basis points in October to support the economy with inflation hovering around 2.0%.

Shares in China and Hong Kong additionally experienced declines after stimulus measures announced by the Chinese government failed to invigorate investor sentiment. Whilst there was an overwhelming disappointment from markets, commentators acknowledged prudence was the right approach as China may need to rethink their economic strategy should Donald Trump’s suggested trade tariffs be implemented.

In unison with global markets, Emerging Market equities fell over October, given the widespread risk-off environment ahead of the US election. A stronger US dollar typically leads to declines in Emerging Market equities and does not help their prospects.

In commodities, Brent Crude Oil remained at the lower end of recent trading ranges, despite ongoing geopolitical risks. Meanwhile, gold continued to hit fresh highs in US dollar terms.

Given the major political events that had markets on tenterhooks throughout October, in our next market update we will discuss the reaction and activity that followed the Autumn Budget and Trump’s US election win in November.

In the meantime, you can hear from our advisers with further financial planning insights on the Autumn Budget below: