Markets continued their roller coaster ride as US equities surged in October, with the bellwether Dow Jones Industrial Average notching its best monthly gain since 1976.
The S&P 500, a broader benchmark for large cap US stocks, rallied +8% for a -18% return year-to-date, while smaller company stocks gained +11% for a -17% full-year loss.
Overseas equities advanced +3% in October for a -24% YTD return on the MSCI ACWI ex-US Index, with geopolitical turmoil abroad causing both European and Asian stocks to lag their US counterparts.
Within fixed income, bond prices fell as rates continued their ascent ahead of what is anticipated to be the final 75 basis point hike in this cycle before the pace of rate increases begins to slow. The Barclays US Aggregate Bond index fell -1% in October and is down -17% year-to-date.
Commodity prices rose +2% on the month with the Bloomberg Commodity index up +16% this year, driven by higher oil prices in what the IEA declared to be the first true global energy crisis.
With volatility seemingly here to stay, we seek to provide stability through our proprietary Three Dials asset allocation framework, which was unchanged during the month of October as we summarize below:
Despite the sharp October rally for stocks, every major equity index remains below its long-term moving averages, a sign that the technical recovery still has room to run. Our Momentum Dial remains in a “Negative” position at month-end.
October’s ISM Manufacturing report came in above expectations to show that the overall economy was still in “expansionary” territory, staving off those recession fears for at least another month.
As key leading economic indicators continue to deteriorate and the global growth picture remains challenged, data suggests that we’re not out of the woods just yet, and our Economic Dial holds its “Neutral” reading.
Equity valuations were largely unchanged during the month, with stocks rallying as corporate earnings have largely come in above expectations. With equity multiples in-line with long-term averages, our Valuation Dial remains in a “Neutral” position.
Our Three Dials composite reading continues to take a Slightly Defensive approach, with two dials taking a Neutral position while one dial remains fully off.
Sources: Morningstar