The rollercoaster ride resumed in October, with both stocks and bonds taking a hit due to elevated geopolitical concerns and a steep increase in bond yields. The MSCI World Islamic Index declined by 3.4% during the month, while the Dow Jones Sukuk Index fell by 0.9%, as investors weighed on the prevailing risks surrounding geopolitical uncertainty and fled to safe havens, benefitting commodities like oil and gold (source: Bloomberg).
Higher for longer continued to dominate the headlines and dampened market sentiment. S&P 500 fell by 2.2%, marked the first three-month losing streak for the index since March 2020. The correction came amid a rapid rise in Treasury yields, as the US 10-year Treasury yield rose above 5% level for the first time since 2007 (source: Bloomberg).
This is attributed to a streak of positive economic data, which raised concerns the Federal Reserve will likely keep interest rates higher for a longer period. Additionally, yields rose across the board in the global government bond market, and widening spread in the credit market dented the returns for both investment grade and high yield bond markets in October.
In the broader economy, better-than-expected GDP figures showed that the US economy grew at an annualised rate of 4.9% in the third quarter, fueled by strong consumer spending. It was the strongest performance since the end of 2021, and more than double the level seen in the second quarter (source: Bloomberg).
Other data also appeared upbeat, with house sales reaching a 19-month high and S&P flash US Composite PMI ticked up from September to remain in the expansion territory.
Elsewhere, the European Central Bank (ECB) left the key interest rate unchanged at 4% in its October meeting, the first pause in 15 months (source: Bloomberg), as evidence mounts of a deepening economic downturn in Europe and ongoing geopolitical crises clouds the outlook.
Meanwhile in China, manufacturing activity unexpectedly contracted in October, renewing concerns over the state of the country's sprawling manufacturing sector and its fragile economic recovery at the start of the fourth quarter.
Looking forward, November has historically been a strong month for markets, with the S&P 500 finishing the month higher more frequently than not. Regardless, with uncertainty and volatility likely to persist, it serves as a stark reminder of the significance of constructing a well-diversified portfolio to weather market turbulence and navigate the sea of uncertainties ahead.