As the October turmoil made painfully clear, those financial markets are deeply interconnected, marked by sudden policy shifts ricocheting between equities and commodities. The S&P 500, with its historical monthly performance data dating back to 1928, faced downward pressure as Asian equities reflected a similar downturn. In contrast to these movements, rather than attracting less interest, gold went through a violent repricing. At the same time, the federal U.S. government’s debt skyrocketed by $10 trillion in less than five years, alarming investors.
As October progressed, market analysts noted an impending Santa Rally, fueled by expectations of two Federal Reserve interest rate cuts. The liquidity tide seemed to be coming in, indicating that there were opportunities for astute seasonal investors to get ahead of them. Yet the month is historically considered hexed for stocks, so prudent footing through the spooky month is essential.
October is usually overshadowed by the Halloween effect, a phenomenon with the power to skew investor perception and market performance. Conventionally this Q4 floor gets firm around October 26-27. This sets up an intriguing inflection point for equities as they head into the 2023’s last few months.
Despite the challenges faced in Asia, with Hong Kong and mainland China markets impacted by the uncertainty surrounding the Trump-Xi summit, retail investors, global macro funds, and long-only funds reported their highest equity exposure in over a year. Investment interest has been increasing as oil prices have started ticking upward. This unprecedented spike is largely the result of shrinking U.S. inventories as well as continuing geopolitical crises that are realigning the energy trade.
The precious metals market was experiencing a squeeze from all sides. The prevailing strong dollar had investors feeling bullish. Consequently, de-risking sentiment among investors led to a sharp decline in demand for both gold and silver. On top of this, overstretched charts and the seasonal flow of Indian demand made for the challenging outlook for these assets.
The recent U.S. government shutdown has produced an economic data black hole. This state of affairs leaves both private and public investors flying blind, without the information they need to make informed investment decisions. This confluence of events has contributed to increased volatility and uncertainty in the markets. As such, producers largely are adopting a wait-and-see attitude as they work to assess new risks and opportunities.