Markets in a Nutshell - October 2020

Global equities retraced from a five-month rally that had been ignited by a robust recovery in many high frequency economic indicators. Worries that high unemployment levels and expiring stimulus measures could weigh on growth drove the pullback. A wave of IPOs, M&A and stock splits, typically evident of excessive liquidity, characterised the month. All sectors fell with energy, financials and communication services the worst performers.
 
US equities declined on disappointing macroeconomic data and expiring stimulus measures. America’s unemployment rate is still high at 8.4%, with retail sales growth slowing dramatically in August. Emerging markets displayed mixed performance with commodity consumers such as India faring better than commodity producers such as Brazil and Russia.
 
Global developed market sovereign bond yields fell modestly and the risk off sentiment bolstered the US dollar and Japanese yen, both viewed as safe-haven currencies. The US Federal Reserve signalled continued dovishness with no rate hikes expected until 2023.
 
Precious metals silver and gold gave back some of their sizeable recent gains. Oil tumbled after Saudi Arabia cut prices for major customers and on concerns about the sustainability of any rebound in demand for travel.

On the geopolitical front, tensions between the US and China remain elevated with the Pentagon saying it would extend export restrictions to China’s biggest semiconductor manufacturer SMIC.

The imminent US elections, increasing geopolitical tensions and early indications of rising COVID-19 infection rates in the US and Europe could each materially weigh on markets. The managers favour equities but continue to employ S&P 500 hedges in both the Foord International Fund and the Foord Global Equity Fund, to mitigate risk and dampen probable volatility.

The funds are well diversified and optimally balanced between protecting capital against elevated near-term risks and capturing the long-term inflation-beating investment opportunities that we can see.