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August – October 2023

  • 2023

The period August – October 2023 was volatile for stock markets worldwide, with September and October particularly difficult for investors. The S&P 500 fell -8.61%, from 4,589 to 4,194 – with that opening figure the highest the index had reached since January 2022. It was a similar story in Europe, with the S&P Euro Plus falling -8.24% from 2,317 to 2,126. Whereas still negative, the FTSE 100 suffered a shallower drawdown compared to its Western counterparts – falling -4.91% from 7,699 to 7,322. However, this was in stark contrast to the mid-cap dominated FTSE 250, which fell -10.76% from 19,143 to 17,083, touching depths last seen during the chaotic aftermath of the Liz Truss mini-budget.

On October 7th, the world was rocked by the Hamas-led invasion of Israel where militants breached the Gaza-Israel barrier, killing over 1,000 Israeli civilians and taking around 240 hostages in a multitude of attacks – including at the Re’im music festival near the border. These acts were greeted with utter fury by the Israeli government and resulted in a declaration of war the following day – with the resulting casualties seen over the last month stunning international observers and prompting many to call for a ceasefire.

It can feel insensitive to speak on markets at such a difficult time. However, it is worth remembering that Israel makes up only around 0.16% of the FTSE All-World index, with market falls driven chiefly by other events around the world, the US foremost amongst them. However, it is worth keeping a close eye on the rhetoric and actions of Iran in the coming months due to its status as one of the chief regional allies of Hamas. Any escalation from their end in the form of restricting the volume of oil which passes through the Strait of Hormuz could see its price surge to well over the $120 highs seen briefly in 2022. 20-25% of the world’s oil moves through this pinch point between the UAE and Iran, giving the country a powerful potential economic weapon to use against the West. In the immediate aftermath of the Hamas attack, the oil price shot 5% higher; however, as of October 31st the oil price was actually slightly lower than it was before Hamas’ attack on Israel – at around $81 per barrel.

Indeed, the recent volatility in global markets has been mostly influenced by the unstable US political climate. On October 3rd, Speaker Kevin McCarthy was ousted from his position by a group of eight hard-right Republican rebels led by Congressman Matt Gaetz. Given the razor-thin majority of the Republican Party (221 to 213), even five rebel members could unseat McCarthy. Gaetz’s motion to remove McCarthy resulted in a 216-210 vote, making McCarthy the third shortest-serving Speaker in US history. Concerned about the country’s ability to reach a fiscal spending agreement by the November 17th deadline – longer-dated US bond yields surged, reaching 5.1% in the final week of October (up from around 4% at the start of August). These yield surges had a ripple effect on various financial markets, causing them to trend downward throughout the month. After three weeks of chaotic infighting, the relatively unknown ultra-conservative Mike Johnson was elected as the new Speaker on October 25th. However, as of October 31st, the 30-year yield stubbornly remained above 5% – though had at least stabilised.

Inflation prints and central bank deliberations are still as important now as they have been over the last 2 years, though there is certainly a clear hope that the end could be in sight – with the US in particular looking in much stronger shape. The latest CPI figure for the US stands at 3.7% – still above the 2% target, yet much more manageable than the peaks of 9.1% in June 2022. Similarly, the UK has started to make more significant headway over the last few months – with the rate now down to 6.7% from the highs of 11.1% seen in October 2022 after energy prices surged that month. Due to a strong base effect coming into play as the energy price cap in the UK rebases lower, it is likely that the CPI inflation rate in the UK drops again to around 5% in October and November.


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