It may be starting to sound a bit like a broken record, but October saw another challenging month in terms of financial market performance. Share markets around the world experienced further falls following on from August and September’s declines, with rising interest rates and the conflict in the Middle East fuelling much of the volatility. 

Here at home, New Zealand’s NZX 50 index saw a total decline of over 4% (4.8% in local currency), and the Australian ASX 200 saw a similar (but slightly less steep) decline of 3.6% over the month. The US equity market (represented by the S&P 500) saw some early gains until mid-month, but like other markets round the world then fell sharply off the back of the developing conflict in the Middle East, ending the month just over 2% down. 

Interestingly, mid-October marked the time when many US companies report on their recent financial results aka “Q3 earnings” and most companies (over 80%) reported a lift on their previous earnings expectations. However, this positivity was balanced with more negative outlooks on the future - with over half of the S&P 500 companies surveyed issuing negative earnings guidance for Q4. This negative outlook may have contributed to the falling share prices in the US.

The seemingly strong “economic resilience” reflected in global economic data served to continue driving interest rates higher both here and abroad - with both the US Federal Reserve and our own Reserve Bank of NZ (RBNZ) signalling that rates are likely to remain higher for longer than previously predicted. Keeping interest rates high is one of the main tools used by central banks to fight inflation. Although the RBNZ held the official cash rate (OCR) steady in October, higher interest rates flowed through to higher mortgage rates - adding to the cost of living pressures.

Finally, in terms of fixed income (aka bond markets), the increasing interest rates discussed above saw bond yields continue to hit record 10-year highs. And high yields translate to poor performance, with the global bond market falling 1.2% in October. This was reflected in the local bond market, with NZ bonds also seeing poor performance off the back of high interest rates and increasing bond yields.

The ongoing ‘headwinds’ across these different asset types can be confronting in the short term, as it can be really hard to ignore the volatility being seen across many investments (including house prices!). As always, it’s important to remember that investing should be treated as the long game and markets tend to go up over the medium and long term, so staying focused on this can enable a more positive and forward-focused mindset.

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