October defied its ominous history as the global equity markets posted another positive month, sending the major indices up roughly 20% for the year. Positive developments on China/US trade negotiations, a Federal Reserve interest rate cut, and corporate earnings that have largely exceeded expectations contributed to investor optimism. Asian markets led during the month largely on hopes for progress on trade. Japan saw a large jump in consumer spending in advance of an increase in the country’s value added tax and was the strongest market in the month. Overall, economic growth continued to show signs of slowing, with business investment sowing the sharpest decline. Currency movements were pronounced as the UK pound rose sharply against the US dollar on expectations of a Brexit deal after the upcoming December election. Emerging markets also rallied sharply on the trade prospects, stability in commodity prices, and lower interest rates. They have now outperformed developed markets over the past year.
Health care stocks rallied on strong earnings and the resolution of several lawsuits over the oxycodone crisis. Information technology stocks also posted a strong month and remain the best performing sector for the year. Energy stocks, despite firming of oil prices, sold off and, along with consumer staples, were the only sectors in negative territory for the month. Factor performance was broadly muted in the month, with risk providing the largest source of discrimination as investors embraced a “risk on” month. Sentiment indicators continued to detract as the sell-off in momentum stocks continued for a second month in developed markets. Sentiment in emerging markets continues to work well. Value measures were generally muted except in Japan where they provided meaningful return and detracted in the emerging markets. Small cap stocks also provided modest discrimination in the month.
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