US stocks notched a gain in October after two consecutive months of declines, bucking weaker earnings growth, persistent inflation and expectations of more sharp rate rises by the Federal Reserve.
Wall Street’s benchmark S&P 500 climbed 8 per cent during the month, its first monthly increase since July. On Monday the stock index fell 0.7 per cent.
The tech-heavy Nasdaq Composite index rose 3.9 per cent in October, after closing down 1 per cent in Monday’s trading.
Morgan Stanley analysts attributed the recent gains in part to technical reasons, such as a lack of companies that posted weak earnings updating their guidance for the next 12 months. Large passive investors did not sell off shares because consensus estimates for the next four quarters were mostly unchanged.
Market participants are also keeping an eye on policy meetings at the Bank of England and the Fed this week.
The US central bank is forecast to implement its fourth straight 0.75 percentage point rate rise on Wednesday and to signal further increases in an effort to curb rapid price growth even as concerns mount that the country could enter a recession next year.
“While the Fed has hawkishly surprised most investors this year, we’ve now reached a point where both bond and stock markets may be pricing in too much hawkishness,” the Morgan Stanley analysts said in explaining stocks’ recent strength.
The Fed’s preferred inflation metric, the core personal consumption expenditures index, rose 0.5 per cent month on month for September, data on Friday showed. That was in line with economists’ expectations and down from 0.6 per cent in August.
Mark Haefele, chief investment officer at UBS Global Wealth Management, said the latest inflation figures meant it was “too early” for the Fed to follow the Bank of Canada or the European Central Bank in issuing “less hawkish signals”.
Investors have also been watching corporate earnings season for any signs of strain from high inflation and rising borrowing costs.
Companies listed on the S&P 500 have so far reported year-on-year earnings growth of 2.2 per cent for the third quarter, according to FactSet data, which took into account groups that have reported and estimates for those that have not. That would mark the lowest rate of profit expansion since the third quarter of 2020.
Tech companies including Amazon, Facebook owner Meta and Google parent Alphabet have disappointed investors in recent days with their third-quarter results and guidance.
The energy sector is reporting earnings growth of 134 per cent, however. Companies including Pfizer, Airbnb and Uber report on Tuesday.
In government bond markets, the yield on the 10-year US Treasury note added 0.04 percentage points to 4.05 per cent as its price fell. The yield on 10-year German Bunds gained 0.05 percentage points to 2.15 per cent.
Consumer price inflation in the eurozone rose to a record 10.7 per cent in October, higher than the 10.2 per cent predicted by economists polled by Reuters and up from 9.9 per cent in September. Gross domestic product rose 0.2 per cent in the euro area in the third quarter from the previous three-month period, figures from Eurostat show.
Agnès Belaisch, managing director and chief European strategist at the Barings Investment Institute, said a period of stagflation — low growth coupled with relatively high inflation — remained her base-case scenario for Europe, despite the better than expected GDP figures.
In equity markets, the regional Stoxx Europe 600 added 0.4 per cent. London’s FTSE 100 gained 0.7 per cent, erasing an earlier loss.
In Asia, Japan’s Topix gained 1.6 per cent and South Korea’s Kospi added 1.1 per cent. Hong Kong’s Hang Seng index fell 1.2 per cent, while China’s CSI 300 lost 0.9 per cent.