Weekly Markets Review

6th November 2023

Markets last week

In some years, November has marked the beginning of a year-end rally, where stock markets tend to perform well as investors position themselves for the holiday season and assess their portfolios. Of course, this isn’t always the case and November has also seen volatility and exogenous market shocks. Last week, however, markets kicked off the new month with a bang. Global equities were up 3.3%, as measured by the FTSE All World TR Index. The US market led the way returning 3.9%, European equities finished up 3.4% and the UK market delivered 2.4%.

In the US, information technology was the best performing sector by some margin. The sector earnings have been significantly better than the broader market with 94% of technology companies beating analyst expectations vs. 82% for the wider market. Materials and utilities were the worst performing sectors, both of which have underperformed the broader market in terms of the proportion of companies beating their earnings estimates. In the US earnings season has been better than in Europe where – compared to 82% for the US – only 58% of companies are beating their estimates. Simultaneously, whilst revenue and sales growth are positive in the US, in Europe it is negative clocking in at -8.2% year-on-year (it rises to -0.7% ex-energy) and earnings growth is -7.4%. Intriguingly it was particularly in the US where investors were disproportionately punishing companies for missing their estimates.

It was also a positive week for bond markets. Yields across the fixed income complex fell as bond prices rose – there is a reverse relationship between bond yields and bond prices. The US 10-year treasury yield, having been as high as 5% in recent weeks, fell from 4.88% at the start of the week down to 4.57% by the market close. It was also a positive week for UK government bonds, the 10-year gilt yield fell from 4.51% to 4.29%. Corporate bonds also performed well benefitting from the fall in yields and a narrowing of credit spreads. Credit spreads are the additional yield pick-up from taking on further credit risk often through lending to the likes of corporates. Last week US and European high yield (companies with lower credit ratings) spreads tightened quite significantly. European high yield spreads tightened over the course of the week from 4.91% to 4.74% and US high yield spreads tightened from 4.34% to 3.95%.

It was a big week for central banks as the Bank of Japan (BoJ), the Federal Reserve (Fed) and the Bank of England (BoE) had their monetary policy meetings. Whilst the Fed and BoE left policy unchanged the BoJ surprised markets with a further adjustment to their yield curve control policy. We discuss central banks in more detail below.

For the first week in four gold dropped, having recently surpassed the US$2000 mark. It fell from US$2006 at the start of the week, just holding on above US$2000, finishing the week at US$1992.65. For the second consecutive week oil fell. Brent finished the week at US$84.89bbl and West Texas Intermediate (WTI) at US$80.51bbl down 6.2% and 5.9% respectively.

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The Week ahead

Things quieten down after a busy couple of weeks of central bank activity.

Friday: UK Gross Domestic Product (GDP)

Our thoughts: UK GDP data for the third quarter will be released on Friday with the UK economy most likely shrinking during the period. UK economic data has been relatively weak of late as high interest rates have begun to bite.

Friday: UK industrial and manufacturing production

Our thoughts: The production data for September will be released on Friday. Given the weaker than expected reading for August this data will be a key indication of the negative momentum for UK industry. The prior reading for August showed a fall in manufacturing of 0.8% whilst industrial production fell 0.7%.

Friday: University of Michigan Sentiment Index

Our thoughts: The preliminary reading of the University of Michigan Sentiment Index for November is likely to indicate continued pessimism as high inflation erodes people's quality of life and higher interest rates start to take their toll on the consumer. Economists expect the sentiment index to fall from a value of 63.8 to 63.5, whilst inflation continues to be a key concern for consumers.

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Sources: FTSE, Canaccord Genuity Wealth Management

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Your weekly market review was powered by Canaccord Genuity Wealth Management (CGWM)

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Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity. Where investment is made in currencies other than the investor’s base currency, the value of those investments, and any income from them, will be affected by movements in exchange rates. This effect may be unfavourable as well as favourable. Past performance and future forecasts figures are not a reliable indicator of future results.