Market Commentary

In October, investors turned decidedly cautious ahead of the pivotal U.S. election. Meanwhile, the lack of a breakthrough in fiscal stimulus negotiations dampened hopes for near-term support, while some worrisome global COVID trends and the subsequent tightening of restrictions on activity sapped risk appetite and fueled the safe haven bid. At the same time, investors were largely unphased by robust global economic and earnings results that revealed a rapid recovery scenario taking hold, with favourable fundamental trends completely overshadowed by headlines pertaining to U.S. politics and the proliferation of the coronavirus.


Global equities edged lower for a second straight month in October. Both the S&P 500 and the Nasdaq declined as mega cap technology stocks reversed course after an extended stretch of outperformance. The TSX followed suit and pulled back in the broad retreat from risky assets. European benchmarks posted their worst monthly drop since the depths of the pandemic this spring as soaring virus cases saw governments re-impose more stringent restrictions on activity. However, emerging market equities bucked the global trend and gained as virus trends across China remained well under control, while the world-leading revival in Chinese economic activity also boosted the MSCI gauge of developing market stocks. 

Somewhat surprising was that fixed income markets also declined in October even despite the environment of heightened investor angst. Instead, bond markets took their cue from the steady string of healthy global economic results and the prospect for more aggressive fiscal spending in 2021 – regardless of the election outcome. As a result, the yield curve bear-steepened, with the 10 year treasury yield climbing 19 basis points to 0.87% in October, the biggest monthly advance in 2020. Meanwhile, short-term rates remained well-anchored, with central banks reinforcing their pledges to keeping rates pinned lower for an extended period of time. Finally, credit spreads barely budged as risk aversion set-in and actually narrowed throughout the month, leading corporate bonds to outperform their government counterparts. 

The U.S. dollar was well-bid in October as nervous investors sought-out a haven in the tumultuous financial market environment. In contrast, the euro stumbled as record virus cases and newly-imposed lockdowns weighed. At the same time, the European Central Bank laid the groundwork for further monetary stimulus at the December gathering, which added to the common currency’s woes in October. The Japanese yen was the top-performing G10 currency and benefited from safe haven flows, while the Canadian dollar managed to hold firm even despite the sharp retreat in crude prices. 

Oil prices were pummelled by the latest COVID trends as renewed countermeasures dampened the outlook for global demand. Indeed, crude gave back most of its summer gains as the latest curbs on activity took hold. Meanwhile, gold failed to provide much of a hedge in the erratic market environment and inched lower as dollar strength weighed on bullion prices. Finally, copper managed to resist the downward pull of risky assets and eked out a seventh straight monthly gain thanks to the impressive growth backdrop in China that has reignited demand for industrial metals, while the potential for supply disruptions from major producers in Chile also buoyed prices throughout the month.