Global Market Commentary- October 2022

Global markets rebounded in October after sliding to new lows in September. The MSCI World Islamic Index rose by 9.5% and the Dow Jones Sukuk Index fell by 1.2% in October.

After a small relief rally in the beginning of October, market participants turned their sights to the October 13 US CPI print for September with inflation concerns most salient. The CPI print was anticipated to chart the course of the markets in the near future, whereby lower-than-expected inflation would spur a rally and higher-than-expected inflation would trigger a sell-off. 

To the surprise of many, even though the October 13 CPI showed an elevated inflation reading, US markets rallied that day and for the rest of the month. It has been suggested that the market had reached certain technical thresholds that day indicating that stocks were oversold and hence signaling a buying opportunity. 

The rally continued into earnings season, as many companies beat the lowered expectations that had been forecasted, while the Q3 US GDP release surprised with growth at an annual rate of 2.6% and a slowdown in consumer spending. These developments suggested that the Fed’s hiking cycle was for the time being achieving its objectives of slowing economic activity without triggering a recession.

In total, the S&P 500 rose 8.1% in October 2022. The performances of US stocks also started to differentiate in October, with mega-tech companies underperforming following earnings disappointments, while energy and industrial companies outperformed with the US government even raising concerns about wanting to tax their “windfall profits.”  If the US midterm elections are received well by markets, the US may experience a “midterm” rally in the next 12 months as they traditionally have done. However, given the cautious economic outlook, volatility may continue to be heightened in the near term.

With the elevated inflation data, a 75 basis point Fed hike was all but confirmed for the beginning of November, and yields on fixed income investments rose again in October and remained at multi-year highs. 

In the UK, political drama continued to unfold, with Lizz Truss resigning as Premier after just 44 days in office following her controversial tax plan. Rishi Sunak took over as Prime Minister without opposition and called for taxes to go up across the board, resulting in the markets restoring a sense of calm and the pound Sterling recovering against the US dollar after reaching all time lows in September. 

Meanwhile in Europe, the war in Ukraine continued, with Russia threatening to back out of a deal to allow grain shipments from Ukraine, one of the world’s largest food exporters. Russia not cooperating on grain shipments could result in a rise in global grain prices, causing significant problems for many counties with cost-of-living increases.

October also saw the Chinese Yuan fall to its lowest level since 2008, despite state bank support. China has been increasingly impacted by its faltering real estate market and the supply chain issues created by its Covid-Zero policy, and has been trying to support the economy while other central banks continue to hike rates, further pressuring the Chinese currency. Investment in Chinese equities has also suffered as a result, giving back gains from recent years.

Looking ahead, November is traditionally a strong month for the markets, with the S&P 500 having finished the month higher more often than not. In the longer term, US equities continue to trade at below average multiples of earnings, Europe continues to exhibit a resilient economy and China’s trading relationships continue to grow. Investors can be expected to keep an eye on both the November economic releases as well as what lies on the horizon beyond that.