Another surprising election result.
The week in review
Japan’s ruling coalition led by the LDP lost its parliamentary majority in a shock result that will bring market uncertainty. In earnings, Q3 news was somewhat mixed, leading to a 1% drop in the S&P 500[i] last week (in USD). But ahead of major earnings releases, including from ‘Magnificent Seven’ companies, the Nasdaq[ii] managed a small +0.2% rise to reach a record high. Small caps fared badly (the Russell 2000[iii] dropped 3% last week) as the ‘rotation’ trade continued to lose steam. In Europe, a mixture of lacklustre earnings and further signs of a stalling economy weighed on investor sentiment, pushing the Stoxx Euro 600[iv] 1.2% down over the week (in euros). US Treasuries continued to sell off, with the 10-year yield rising 16 bps on the week to 4.24%, reflecting strong US data and growing market expectations for a Trump election victory. His plans to “Make America Great Again” (MAGA) include trade tariffs that are expected to prove inflationary, potentially constraining the Fed’s room to cut rates. The rise in Treasury yields helped the US dollar, with the Dollar Index up 0.74% on the week.
Geopolitics
Iran’s supreme leader signalled a measured response to Israel’s attack, averting a wider conflict for now and leading to lower oil prices.
Key data
S&P Global’s flash estimate of the composite purchasing managers’ index (PMI) for the euro area came in at 49.7 this month, a slight uptick from 49.6 in September. The German PMI surprised to the upside, but headcounts were cut to the largest degree since 2020. The flash composite PMI for the US edged higher to 54.3 in October from 54.0 final in September, with improvements in both the manufacturing PMI (to 47.8) and services PMI (55.3). The Fed’s Beige Book of economic conditions pointed to a slight decline in activity in nine out of 12 districts, yet the University of Michigan’s survey of consumer sentiment hit a seven-month high of 70.4 in October. Underlining the exceptionalism of the US economy, the International Monetary Fund raised its 2025 growth forecast to 2.2% from 1.9%. In China, last month’s industrial profits at large companies fell 27.1% from a year earlier, after a 17.8% drop in August.
[i] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, S&P 500 Composite (net 12-month return in USD): 2019, 31.5%; 2020, 18.4%; 2021, 28.7%; 2022, -18.1%; 2023, 26.3%.
[ii] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, Nasdaq Composite (net 12-month return in USD): 2019, 36.7%; 2020, 44.9%; 2021, 22.2%; 2022, -32.5%; 2023, 44.6%.
[iii] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, Russell 2000 (net 12-month return in USD): 2019, 25.5%; 2020, 20%; 2021, 14.8%; 2022, -20.4%; 2023, 16.9%.
[iv] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, STOXX Europe 600 (net 12-month return in EUR): 2019, 27.6%; 2020, -1.5%; 2021, 25.5%; 2022, -10.1%; 2023, 16.5%.
