Glimmers of light at the end of the tunnel?

Investor confidence has been knocked by the realisation that interest rates could stay higher for longer – causing markets to have a turbulent month in October. But this could all change in the last couple of months of the year.

October was offering plenty of tricks and not so many treats, as there was a sharp sell-off in the bond market. This was brought on by uncertainty as to when interest rates would start coming down, along with a stronger-than-expected US economy.

This may sound like bad news, however, it could actually create opportunities from an investment perspective. Lilian Chovin, Head of Asset Allocation at Coutts, the bank behind the NatWest Invest funds, says “While investors were feeling positive over the summer, nerves are now getting the better of them a little. But that could be a good thing. It could mean investment opportunities lie ahead and we believe we could see markets recover over the remainder of the year.” 

Some changes to our funds

Despite the uncertainty from investors, there are some positive signs ahead. Inflation is continuing to fall, economies are holding strong and there are signs we’re nearing the peak in interest rates. With this in mind, the experts at Coutts have made some adjustments to the NatWest Invest funds.

One change includes an increase in global stocks. This is because of the influence the US has on global markets. The country’s current economic resilience could have a positive knock-on effect on wider regions and their stock markets.

Also, the possibility that the run of interest rate rises could be coming to an end means there’s a more positive outlook for bonds. So Coutts also bought more long-dated US government bonds, which could benefit from this. 

High expectations

US earnings season began in mid-October – where companies report how well they’ve done for the previous three months – and there were high expectations to beat.

Some industries, like tech companies in the US, had a stellar first half of the year which meant they were under even more pressure to keep this momentum going. While announcements were positive, they still fell short of where investors thought they would be, so some big names saw their share prices drop.

Howard Sparks, US Equity Research Analyst at Coutts, explains: “We’ve seen negative market reaction to generally positive news on company earnings. With expectations being so high going into this earnings season, any signs of weakness were severely punished.”

This reaction reemphasises the nervousness from investors and how sensitive markets can be during these times. But it’s worth highlighting that this negative reaction and related weak market performance isn’t that uncommon, and we see current levels as being potentially attractive given our expectation for things to improve for the rest of the year. 

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