October was an eventful month for investors to say the least. All around the world, stock markets were slammed by fears about trade wars, higher interest rates and stagnating growth. Although markets rallied slightly towards the end of the month, most finished significantly down.
US stocks suffered their worst monthly loss since 2011 and their biggest single day fall since the Brexit vote. President Trump has suggested that this turmoil is because of fears that Democrats will retake Congress in the upcoming midterm elections.
In reality, however, few market analysts saw the stock market fall as a reaction to political events. Investors are worrying that stocks may be valued too richly and that the federal reserve rates are rising more quickly than the economy can handle.
Nasdaq took the brunt of the damage, losing 9% of its value during the month. This is the biggest drop for Nasdaq since November 2008. The Dow Jones, which rebounded towards the end of the month, shed 5% during the month.
Back across the Atlantic in the UK – and despite Brexit uncertainty – things were marginally less chaotic. Chancellor Philip Hammond delivered his Budget speech at the end of the month. This generally received a positive reaction from the public as he increased the personal allowance to £12,500 and lifted the level at which people pay higher rate tax to £50,000.
British industry saw something of a boost in October; Rolls Royce created 200 more jobs and Spanish train maker TALGO shortlisted six sites in the UK for a new manufacturing capability that will create 1,000 new jobs.
Unavoidably because of the global sell off, the FTSE 100 finished the month down 5% at 7,128. The pound also fell by 2% against the dollar, ending October at $1.2772.
On the continent, markets also saw an unsettled month. Italy’s right wing populist government have been locked in a battle with the EU over their budget which they claim is “the first Italian budget written in Rome and not Brussels.” In the long term, an anti-Brussels Italian government could prove a serious problem for the EU, potentially on the scale of Brexit. Watch this space.
The election of far-right leader Jair Bolsonaro caused Brazilian markets to climb by 10%, closing October at 87,424. Brazil was the only major stock market to rise in a month of global stock market turmoil. His election has been seen as favourable to many Brazilian businesses, but his policies are likely to jeapordise attempts to save the Amazon as he wants to extract much of its mineral resources and expand agriculture into the rainforest.
The stock market chaos didn’t let up in the Far East. South Korea saw the greatest fall, nosediving by 13% to end the month at 2,030. Hong Kong was down by 10% to 24,980 while the Japanese market fell 9% to 21,896. China itself was ‘only’ down 8% as the Shanghai Composite index ended the month at 2,603.
Whether last month’s stock market turmoil will continue is unclear. It could be that the fall was ‘necessary’ in order to take some of the air out of the US markets, making recent market turmoil a ‘healthy correction’ rather than a catastrophic drop. Only future performance will tell…