CCLA Good Investment - Market Report

October 2024 (see link for more info)
October 2024 Page 1 of 3
Market report
The headlines
Investment returns over the past year: global shares continue to outperform bonds.
Sources: Bloomberg, as of 31 October 2024. Daily data, except for inflation and UK commercial property, which are shown monthly. UK
government bond returns as per the Markit iBoxx £ Gilts Index. UK inflation index (31 October 2023 =0%) as per the Office of National
Statistics’ Consumer Price Index, reported with a one-month lag. UK commercial property as per the MSCI UK Monthly Property Index,
estimated for the most recent month. Cash returns as per the Sterling Overnight Index Average (SONIA) estimated for the most recent
month. Global equity returns as per the MSCI World Index. Past performance is not a reliable indicator of future results.
Economics and markets news
Share prices were on course for modest gains in
October until a correction on the last day of the
month. They ended October more than 2% down, in
local-currency terms.
However, the British pound (sterling) weakened versus
most currencies, ahead of the Labour government’s
first budget at the end of October. That decline
boosted returns from foreign shares and bonds to UK
investors.
US stocks again fared better than the rest of the
world, led by the post-Covid recoveries of companies
like United Airlines and Norwegian Cruise Line
Holdings. All three main US stock market indices (the
S&P500, the Dow Jones Industrial Average and the
 US share prices rose to all-time highs in October, but they corrected on the last
day of the month.
 Inflation remains above target in most countries, so investors now expect fewer
rate cuts by central banks than they did a few months ago.
 The UK government’s Autumn Budget, the US presidential election and China’s
slowdown have returned investors’ attention to the role of fiscal policy – for now.
October 2024 Page 2 of 3
Nasdaq composite index) reached all-time highs
before ending lower over the month. The US dollar
strengthened, as Middle East tensions continued and
investors trimmed their expectations for rate cuts by
America’s central bank, the US Federal Reserve (Fed).
UK shares lagged the US market, held back, among
other things, by housebuilders like Vistry. Eurozone
stock prices fell as some bellwether shares lowered
their financial forecasts (pharmaceuticals company
Bayer, semiconductor firm ASML, drinks producer
Pernod Ricard).
Most bond markets struggled during October:
inflation remained above target in most countries, and
investors now expect fewer rate cuts by central banks
than they did a few months ago.
United States
US stock markets advanced to record levels in
October. However, the VIX index, which measures
stock market volatility, rose by more than a third
during the month. A sell-off on the last day of October
pushed the US stock market to a loss of 0.76%, in US
dollars, for the month.
Technology stocks were an important driver of
October’s price swings.
Semiconductor firms like NVIDIA, for example, provide
the hardware on which artificial intelligence (AI) runs.
Much of investors’ valuation of these companies
depends on their future growth. As a result, the
slightest hint of uncertainty about these companies’
fortunes may trigger volatility. NVIDIA’s share price,
for example, fell 5% on the last day of October.
Oil price swings due to Israel’s conflict with Iran also
caused volatility.
Brent Crude oil peaked above US$80 per barrel after
Iran launched missiles at Israel in early October. But
the oil price slid to just over US$70 when it became
clear that Israel would not retaliate against Iran’s
nuclear or oil installations. Some oil firms’ shares
temporarily benefited from higher prices, but most
other shares weakened.
Economic data published during October was a
third source of volatility.
Share prices suffered when US consumer price
inflation (CPI) slowed from 2.5% in August, year on
year (yoy) to 2.4% in September. Shares also
weakened after US nonfarm payrolls showed a higher-
than-expected 254,000 increase for September. And
stock prices were muted when the earliest estimate of
third-quarter GDP came in at 2.8% (annualised),
outstripping expectations.
Paradoxically, signs that the US economy remains
strong weighed on stock prices. That’s because
strength in the US economy makes further and deeper
rate cuts by the Fed less likely.
After the Fed’s initial rate cut this cycle, of 0.50% in
September, investors now expect it to cut by 0.25%
when it meets next, on 6-7 November.
US bond yields rose as investors trimmed their
expectations for rate cuts. Two-year and 10-year US
Treasury yields rose above 4% for the first time in
months, to end October at, respectively, 4.16% (0.56%
higher for the month) and 4.28%. Bond yields and
bond prices move in opposite directions, so US bonds
sold off 2.48% over the month. That leaves bond
returns for the calendar year to date at 1.86%.
UK
UK share prices fell 1.67% in October, as most
investors focused on the current Labour government’s
first budget that happened at the end of the month.
Chancellor Rachel Reeves delivered a budget that
aims to raise taxes by around £30 billion per year and
borrow an additional £30 billion - £40 billion per year.
She plans to use that extra funding to eliminate the
budget deficit by 2028-2029, invest in public services,
and raise GDP growth in coming years.
Bond investors were sceptical after the Chancellor’s
budget speech, and 10-year UK gilt yields rose to
4.41% at the end of October, from 3.97% at the end of
September.
The Bank of England (BoE) next meets on 7
November. UK consumer price inflation (CPI) fell from
2.2% yoy in August to 1.7% in September, on lower air
fares and cheaper petrol. But investors reduced their
expectations of a rate cut after the Office of Budget
Responsibility said that the budget would add 0.5% to
inflation in 2025.
Other markets
Eurozone share prices fell 3.34% in October, as poor
corporate earnings compounded with weak economic
sentiment. Consumer discretionary stocks such as
LVMH, L’Oréal and Pernod Ricard suffered from their
exposure to the slowing Chinese economy. Industrial
shares such as those of pharmaceuticals producer
Bayer and semiconductor firm ASML also weakened.
Eurozone GDP growth accelerated from 0.6% in the
second quarter, yoy, to 0.9% in the third quarter –
sluggish but higher than expected, and especially
strong in peripheral countries like Ireland, Lithuania
and Spain.
Eurozone inflation fell from 2.2% yoy in August to 1.8%
in September, and the European Central Bank (ECB)
cut its deposit rate by 0.25% in October, to 3.25%. But
a first estimate of German headline inflation in late
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Important information
This document is issued for information only. It does not provide financial, investment or other professional advice. We strongly
recommend you get independent professional advice before investing. The market review, analysis, and any projections in this
document represent CCLA’s house view and you should not rely on them when making any investment decisions. Actual results
could be significantly different than expected. We do not have to update or amend these. Past performance is not a reliable
indicator of future results. The value of investments and the income from them may fall as well as rise. You may not get back the
amount you originally invested and may lose money. For information about how we obtain and use your personal data please see
our privacy notice at www.ccla.co.uk/privacy-notice. We, CCLA Investment Management Limited (registered in England & Wales,
No. 2183088 at One Angel Lane, London EC4R 3AB), are authorised and regulated by the Financial Conduct Authority.
October 2024 Page 3 of 3
October came in at 2.0% yoy, significantly up from
1.6% in September.
GDP growth appears stronger than expected and
inflation remains above target. As a result, the ECB
may tread carefully when it meets next, on 12
December. Ten-year German government bond yields
rose 0.12% during October, to 2.41% at the end of the
month.
The Chinese stock market also floundered in October.
Chinese share prices rose 21% in September, after the
government there announced its boldest monetary
stimulus in years. But in October, Chinese share prices
fell 5.60%, as the government failed to back up its
monetary stimulus with budget measures. Those
measures are needed to support the vital property
sector and to ensure economic growth in the long run.
In Japan, the ruling Liberal Democratic Party suffered
a surprise defeat in elections for the country’s lower
house. Core inflation, the Japanese central bank’s key
inflation gauge, fell from 2.8% yoy in September to
2.4% in October, and September industrial production
came in stronger than expected. The central bank
kept its policy rate on hold, at 0.25%, but confirmed
its readiness to hike rates if necessary. Japanese stock
prices rose 1.88% in October, led by tech firms like
Konica Minolta, which benefited from the same
momentum that has boosted tech stocks elsewhere.
Looking ahead
Geopolitics is all over the news. Russia-Ukraine. Israel-
Iran-Palestine-Lebanon. China-Taiwan-the Philippines.
North Korea-South Korea. But no investment strategy
can profitably protect your investments from all the
risks these conflicts pose.
Instead, our focus remains with company earnings.
For centuries, earnings have determined stock prices
in the medium to long term. And earnings continue to
grow at around 11% per year, which supports our
positive view of risk assets like shares (our so-called
‘risk-on’ attitude).
The US election looms large as we write this outlook.
The financial analysis that has flooded our mailboxes
for weeks can best be summarised as follows. If Trump
wins, we expect him to raise tariffs, and to extend his
2018 Tax Cuts and Jobs Act (TCJA) beyond its current
expiry date of 1 January 2025. This is good for
earnings in the short run, but it may harm shares in
the longer run. If Harris wins, we expect her to let the
2018 TCJA expire before she becomes president.
In the UK, the government is approaching the
Scandinavian model, taking tax receipts to around
38% of GDP by 2026-27. Improving public-sector
efficiency will be key to offsetting the inflationary
impact of that higher spending.
In China, precautionary saving for education and
health care continues to hold back the consumption
that could boost corporate earnings. The monetary
stimulus that the Chinese government announced last
month is unlikely to be successful on its own, without
higher government spending,
Three major central banks next meet to discuss
interest rates: the Fed on 6-7 November, the BoE on 7
November and the ECB on 12 December. Inflation has
been slow to return to target, so investors now expect
fewer rate cuts than they did a few months ago. The
UK Budget is behind us, and soon we will know who
will become the next US President. From then on,
attention can return to the question of whether
central bankers will achieve ‘soft landings’ for their
economies, i.e. return inflation to target without
causing a recession.
Glossary
Please refer to the glossary on our website
(www.ccla.co.uk/glossary) for explanations of
terms used in this communication. If you would
like the information in an alternative format or
have any queries, please call us on 0800 022
3505 or email us at clientservices@ccla.co.uk