Developed market (DM) equities experienced only their second negative month of the year (MSCI World Index -2.0% MoM), with weakness across most regions and sectors. US corporates started reporting 3Q24 earnings, with about half of S&P 500 companies reporting earnings during October. Those companies which reported results delivered aggregate earnings growth of c. 8% YoY, well ahead of analyst expectations for 2% YoY earnings growth. However, the stronger-than-anticipated earnings were insufficient to appease investors, with muted forward guidance, geopolitical risk, and higher rates providing a strong headwind for stocks.
Stocks that were able to defy the broader equity market gloom with well-received earnings announcements included Google parent company, Alphabet (+3.2% MoM), Netflix (+6.6% MoM) and Visa (+5.4% MoM). Alphabet’s results highlighted sequential acceleration in its cloud segment alongside continued strength in its search business. Netflix added 5mn customers in 3Q24, ahead of expectation (4.5mn), and the world’s biggest payments network, Visa, reported strong earnings and a positive outlook for 2025. The S&P 500 Financials sector (+2.7% MoM) was another rare bright spot in October, as generally better-than-anticipated 3Q24 earnings combined with the prospect of a boost to net interest margins in a month where yields were generally higher.
Emerging market (EM) equities also struggled in October (MSCI EM -4.3% MoM). The excitement around China’s stimulus package, announced in September, was short-lived, as a lack of additional stimulus measures from the Chinese government saw many investors abandon their investments in Chinese equities almost as quickly as they had piled into them after the initial stimulus announcements. The Nasdaq Golden Dragon China Index of US-listed Chinese corporates fell 4.5% MoM in October despite rallying by 11% in the first few days of the month.
US 10-year government bond yields had their biggest spike in over two years, climbing 0.5% during October to leave them at 4.3% p.a. at month end. The initial catalyst for higher rates was stronger-than-anticipated US payroll data. Still, rates continued to edge higher as the US election drew nearer, bringing with them the prospect of some potentially inflationary policy actions. The higher rate environment boosted the US dollar, which was stronger against all major currency pairs in October (US Dollar Index +3.2% MoM).
