12 min read 3 Nov 20
Summary: In this month’s video and blog Investment Specialist, Kirsty Clark comments on the recent spike in market volatility driven by US political uncertainty and a rapid rise in COVID-19 cases across Europe; and highlights what to look out for as US voters head to the polls.
October proved another tumultuous month for equity markets as a steep spike in virus cases, particularly in Europe, and political uncertainty in the US, overshadowed positive vaccine news and weighed on investor sentiment.
The MSCI AC World Index finished down more than 2% in US dollar terms in October, as developed equities lost ground in the final week of the month.
Asia ex Japan and Emerging markets were the strongest regional performers with Chinese ‘A’ shares boosting market gains. Most other regional equity markets finished the month in negative territory. Europe was the weakest regional performer, led by Germany’s DAX 30 Index, as widespread lockdown restrictions stoked fears of a double-dip recession.
UK large- and mid-cap stocks also lost ground in October, but the FTSE Small Cap Index bucked the trend, delivering a positive return over the month.
In the final days leading up to the US Presidential election, the S&P500 Index also came under pressure, along with the tech-heavy NASDAQ indices. Despite a strong round of third-quarter earnings results, US tech giants including the likes of Apple and Amazon lost ground in October.
In commodities, oil continued its downward spiral, with Brent crude sliding below $38 per barrel, leaving it down more than 43% year to date.
Elsewhere, the US dollar remained largely flat and US 10-year treasuries finished down over the month. German and Italian 10-year government bonds and global high yield bonds turned in a better performance, nudging into positive territory before the month drew to a close.
Energy remained one of the hardest hit sectors in October, and technology and healthcare stocks were also weak – giving back some of their year-to-date gains. The strongest relative performers included telecoms and utilities. Both sectors finished the month up in US dollar terms.
In the final months of 2020, we’ve seen a spike in market volatility with near-term uncertainty in Europe and the US dampening confidence in a sustained global recovery.
Volatility remains lower than at the height of the pandemic in March, but is at odds with the more settled conditions we witnessed throughout the summer months.
Renewed concerns about the economic impact of another round of lockdowns across Europe comes as countries register a sizable uptick in virus cases, with confirmed daily numbers far exceeding those registered in the last peak back in March.
Meanwhile, in the US, polls are pointing to a Democratic victory in the upcoming Presidential election, and voters have been turning out in record numbers for early voting in what looks to be an increasingly divisive contest in 2020.
The odds of a ‘blue wave’ – with the Democrats taking the Presidency and the two chambers of Congress – have been improving, while democratic presidential candidate Joe Biden has been extending his polling lead in the final weeks of campaigning. However, we only need look at the 2016 Presidential contest, to know that the polls can be misleading.
President Trump’s path to victory looks narrower than does Joe Biden’s, but much will come down to total voter turnout, the cut-off for counting ballots, and the declared winner in a handful of key swing states.
Florida is a traditional bellwether state with a hefty 29 electoral college votes, and may yet again prove pivotal to the outcome this year. With a reputation for counting votes quickly, this could one to watch out for in early results.
The winner here has won the presidency in each election since 1992. President Trump won here in 2016, while former President, Barack Obama, won here in 2008 and 2012 (but by a margin of less than 1% to secure his second term in office).
If President Trump wins here, it would make for a more circuitous route to victory for Joe Biden, and hand the incumbent President a good portion of the 270 electoral votes he needs to win the election.
However, to win on electoral college votes, President Trump will almost certainly need to win a majority of the other declared ‘toss-up’ states to come out ahead of Joe Biden – who is expected to win the popular vote by a good margin.
Pennsylvania is one of those northern swing states to look out for. It’s considered by many to be one of the most contentious and crucial of the battleground states, and one which has the potential to decide the next US President. Polls show Joe Biden is leading here, but within the margin of error, so it’s set to be a tight race. Both candidates have spent their final days on the campaign trail here.
Whoever secures the keys to the White House in 2020, investors will be hoping for a clean and decisive result. Until the dust settles and the smoke clears, markets will likely find it difficult to focus on the challenges and opportunities that lie beyond.
The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.