Why are markets so calm?
Raised tensions in the Middle East dominated the headlines last week. Capital markets are obviously not the most humanly important consideration in this situation, but our job as investment managers is to think about how they might react. Initially, global stocks sold off slightly after the news, while oil prices gained 5% from the year’s lows. The dollar recovered about half of its recent decline against almost all currencies. But overall, compared to history, we would characterise this reaction as surprisingly mooted.
September asset returns review
Global stock returns were virtually flat for sterling-based investors last month – up 0.3%. On the face of it, this is somewhat surprising. We started September with the US Federal Reserve continuing to suggest it would be dovish (preferring lower interest rates), which it later made good on by delivering a 50 basis point (bps) interest rate cut. We ended the month with China promising monetary and fiscal stimulus – in a genuine attempt to address its domestic demand problem. Both of those are strong positives for global growth, and yet monthly returns were sluggish. This has to be seen in the longer-term context, though: global stocks have gained 12.8% year-to-date in sterling terms, and 26% since last year’s October sell-off.
September asset returns review
This year was supposed to be a recovery for automotives. At the start of 2024, pandemic-era supply chain disruptions were fading, global interest rates looked set to fall, and capital markets were excited about resurgent global growth. Even Chinese demand looked like it might improve. But, we are now coming to the end of the year and the autos manufacturing sector is in trouble. Stellantis and Aston Martin became the latest European carmakers to issue profit warnings last week, and share prices for the big companies have been hammered.