The US election circus came to town in October, and was the subject dominating market-related headlines during this month. But why is the US election relevant to the NZ markets and economy? Basically, leading into the US election, investors get nervous about the potential implications of a policy shift on inflation and interest rates - and what that may mean in the short term future. Different scenarios have been thrown around by various finance journo's, but if history is any guide, it may not actually matter. According to US market history, in the years where there's a presidential election the US S&P 500 Index has actually risen nearly 80% of the time since 1945. 

First estimates of US GDP (Gross Domestic Product, our most common indicator for economic growth) for Q3 '24 came in at a healthy 2.8% annualised. This indicated that the US economy is growing at a pace that is currently above the trend line; a surprise for many! While the US economy is growing, the US S&P 500 index fell just under 1% in October. While this may seem scary in comparison to the big monthly gains we're getting used to out of the US, it's likely nothing but a wee blip considering the S&P 500's YTD return of more than 20%.

Coming back home to the local share market, a low-light for October was the poor share performance of major telco Spark NZ, with their shares hitting a 9-year low. Financial analysts have been concerned that Spark will issue downward earnings revision at their annual meeting and possibly cut the dividend (the profit that gets distributed to shareholders). In contrast, the Morningstar New Zealand index (which despite only having the top 30 shares in the market vs the NZX50, represents 97% of our investable market), was up by a total of 1.58% for the month. This was likely a welcome relief after the previous two months' downward trends. 

New Zealand’s latest inflation number came in at the lowest level we've seen in three and a half years, and (finally) within the 1-3% target rate band at 2.2%. There's not much doubt that interest rates will continue to come down, however just how fast they'll be lowered is in the hands of the Reserve Bank (RBNZ). In October, the RBNZ kicked off the cycle by dropping the Official Cash Rate (OCR) to 4.75%, the lowest level in 18 months. Expectations are that the RBNZ’s cash rate easing cycle will total 250 basis points (which equals 2.5%). This would take the OCR from its recent peak of 5.5% to 3% in the medium term; the last time the OCR was this low was in August 2022. 

Looking at fixed income markets, bond returns were largely weaker over the month of October - which reversed the positive trend seen over the previous five months. The NZ government bond index was nearly 0.7% down for the month, but to put this up against its international peers, fared better than the Bloomberg Global Aggregate Bond index (a standard index that measures US bond market performance) which fell 1.7% in October.

So what do all these ups, downs and click-bait headlines mean for Simplicity investors? In terms of one's KiwiSaver or Investment Fund balances, not a lot. Our focus as always remains long-term and we prefer not to speculate. We think it's best to focus on your own time horizon and goals when it comes to your long-term savings and investments. As our MD Sam Stubbs says, short-term, markets are a voting machine - and long-term, they're a weighing machine (the truth will prevail)!

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