NEI Monthly Market Insights: October 2023

Nov 20, 2023

Long term yields spook markets in October

Both equity and fixed income markets continued their fall in October as bond yields rose sharply, while heightened geopolitical uncertainty also weighed on market sentiment. In fixed income markets, government bond returns were negative across a number of developed markets with global bonds down -1.2% over the month as yields rose to multi-year highs. The US 10-year Treasury yield pushed above 5% for the first time since 2007, driven mainly by positive economic data from the US, making it increasingly likely that rates will be ‘higher for longer’. Stocks fell across countries as the prospect of ‘higher for longer’ rates hurt equity valuations and the conflict in the Middle East dampened risk appetite. The S&P 500 Index was the best performing developed market, down -2.1% for the month, but still up 10.7% year-to-date, while in Canada the S&P/TSX Index fell -3.2%.

The NEI perspective

Conflict in the middle east has so far not had much of an impact on market performance, but has led to increased volatility through the month as investors fled to the safety of gold. Historically stock markets have shown resilience in the face of increased geopolitical risks as long as the conflicts remain locally contained.

Investors concerned about growth, as many companies saw their stocks fall following strong Q3 earnings reports. Investors were more concerned with forward guidance, with companies providing upbeat forward guidance saw price gains the day after reporting.

High yields continue to weight on markets with long term yields on U.S. Treasuries continuing to experience strong upward pressure. The volatility in yields have been a main driver of poor equity performance over the last two months, but higher yields may lower the need for the Federal Reserve to continue raising rates.

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