October Market Insights: A New Era for Stocks

A Breakthrough Trade Agreement

Stocks reached new heights in October, boosted by a breakthrough US-China trade agreement and exceptional corporate earnings. President Trump and President Xi Jinping reached a comprehensive agreement in Busan, South Korea, that reduced tariffs and suspended export controls. This agreement halved American tariffs on Chinese goods related to fentanyl supplies. It prompted Beijing to suspend retaliatory duties on US agricultural products while pausing its rare earth export restrictions for one year.

The deal also commits China to purchasing at least 12 million metric tons of American soybeans before the year's end. This commitment provides much-needed relief to farmers who had lost access to their largest foreign market.

Corporate Earnings Surge

Corporate America delivered one of its strongest earnings performances in years. This provided fundamental support for the rally beyond trade optimism alone. An impressive 83% of large-cap companies beat profit expectations during the third quarter reporting season. This is the highest proportion since mid-2021. Earnings grew 10.7% from a year earlier, marking the fourth consecutive quarter of double-digit growth.

Technology giants led the charge, with Microsoft, Apple, Amazon, and Alphabet all exceeding analyst estimates. The information technology sector posted earnings growth of 25%, driven by demand for AI-related products. This growth in technology is not just a trend; it reflects a fundamental shift in how businesses operate and innovate.

Federal Reserve's Actions

The Federal Reserve delivered an expected 25 basis point cut in October. However, Chair Jerome Powell suggested it might be the last cut of the year. The rally in global equities is underpinned by the strength in corporate earnings and a limited impact from tariff-related uncertainty. Analysts expect earnings to grow 11% in 2025 and 14% in 2026.

The Federal Reserve appears committed to cutting interest rates gradually, which further supports risk sentiment. We remain vigilant against building valuation concerns. It’s essential to continue seeking appropriate sources of diversification to enhance risk-adjusted returns.

Navigating Uncertainty

The continuing US government shutdown is making the macro picture harder to determine. This is something we are monitoring closely. The lack of information introduces some risk, and we stand ready to adjust portfolios if US economic fundamentals begin to deteriorate.

Digesting the Data

• US large caps climbed 4.87% during the month, notching multiple record closes. Investors celebrated an end to escalating trade tensions between the world's two largest economies. The breakthrough lifted stocks across the board.

• World equities jumped 4.54% for the month, with Asian markets surging 7.10% on hopes the truce would stick.

• Japanese equities rose 4.35% on policy optimism after Sanae Takaichi was sworn in as Japan’s first female prime minister.

• European markets posted more modest gains of 2.75%, while UK equities rose 4.09% on better economic data and waning budgetary concerns.

• Fixed income assets were roughly flat over the month after stronger returns in the prior month. In the UK, Chancellor Rachel Reeves signalled a willingness to consider spending cuts alongside tax increases, which helped UK government bonds rally 2.7%.

  
  

Looking Ahead

As we look to the future, it’s crucial to remain informed and adaptable. The landscape is shifting, and we must be prepared to navigate these changes. With a focus on reliable investment solutions and valuable insights, we aim to be your go-to investment partner.

Our commitment is to help you grow your business and deliver consistent results for your clients. Together, we can face the challenges and seize the opportunities that lie ahead.

In conclusion, the recent developments in the market are promising, but they also require careful consideration. We must remain vigilant and proactive in our investment strategies.

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