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Monthly Market Update - October 2023

By Sheridan Admans
Reading time: 8 minutes

October, known for its spooky nature, brought a multitude of horrors that had significant effects on the market. One such horror was the rise in bond yields, causing concern among investors. Additionally, the escalating geopolitical tension between Israel and Hamas further dampened market sentiment.

October, known for its spooky nature, brought a multitude of horrors that had significant effects on the market. One such horror was the rise in bond yields, causing concern among investors. Additionally, the escalating geopolitical tension between Israel and Hamas further dampened market sentiment.

The UK faced a challenging environment of rising company insolvencies, falling house prices and consumers tightening their belts, cutting back on non-essential spending. Elsewhere, Eurozone inflation reached a two-year low, the US economy continued to show signs of expansion despite pressure from rising interest rates. A rising oil price throughout October and the resilience of the US economy sparked concern among investors that once again inflation could climb higher. Such an outcome could elevate the term premium on government bonds, potentially leading to further increases in interest rates.


The picture for the UK was quite gloomy in October as data showed UK business failures increasing and the latest figures indicate that 2023 is likely to be the worst year for company insolvencies since 2009. In addition, house prices have experienced their largest annual drop since 2009, with a decline of 5.3%(1) based on Nationwide Building Society data. The rise in fuel prices in September led UK consumers to tighten their belts and cut back on non-essential spending, although inflation remained unchanged according to September's data. The British Retail Consortium reported a growth of 2.7%(2) in total sales compared to the same period last year, but this was weaker than the 4.1%(3) increase reported for August. Furthermore, the Confederation of British Industry (CBI) reported that British retailers had their worst October sales volumes since 2017 and anticipate a similarly poor November. Additionally, softer pay and the jobs market momentum showing signs of slowing has given a boost to the chance of the Bank of England not raising rates much further ahead.

In October, inflation in the Eurozone reached a two-year low, coinciding with a contraction in its economy during the third quarter. Specifically, core inflation, which excludes volatile food and energy prices, decreased to 4.2%(4) year-on-year in October, down from 4.5%(5) in September. Economic growth also experienced a decline of 0.1%(6) in the third quarter contradicting consensus expectations. These developments influenced the European Central Bank (ECB) to maintain interest rates at 4%(7), after raising them consistently over the course of the last ten consecutive meetings.

The US unemployment rate increased from 3.7% to 3.8%(8). Unexpectedly, job data for September surprised the markets when it was reported in October, as there was an increase in jobs particularly in the hospitality and leisure, healthcare, and government sectors. This led to a rise in Treasury bond yields in October. Furthermore, consumer prices experienced a 0.4%(9) increase in September, surpassing expectations, and a 3.7%(10) increase compared to the same period last year. Retail sales also exhibited strength, with a 0.7%(11) increase, exceeding anticipated levels and highlighting the surprising resilience of consumers. In addition, the gross domestic product (GDP), which measures all goods and services produced in the US, rose at a better-than-expected pace of 4.9%(12) in the third quarter. This growth was driven by consumer spending, inventory build-up, and government expenditure, placing additional pressure on the Federal Reserve to raise rates at least once more this year.

In Japan, the Bank of Japan made a significant announcement during the past month. Although the bank decided to keep rates unchanged at -0.1%(13), it increased flexibility on its yield curve control. This move comes despite core inflation consistently surpassing the Bank of Japan's target of 2%. The main objective of yield curve control is to provide stability and certainty of long-term interest rates. This, in turn, aims to stimulate borrowing and investment, support economic growth, and encourage inflation. However, many critics argue that yield curve control has led to distortions in the bond market. The recent change in the upper limit of the yield curve means that the 10-year JGB yield can now reach up to 1%(14), which marks an important development. Japan’s core inflation rate accelerated to 2.7%(15) in October.

In September, China experienced another decline in both exports and imports, reflecting weak demand for Chinese goods and subdued domestic consumption. This marks a continuous year-on-year decrease in exports since May. Despite ongoing struggles with deflationary pressures and the slow recovery from the effects of COVID-19 lockdown measures, China reported unexpectedly stagnant consumer prices for September. Additionally, the Producer Price Index, which measures a change in input prices of raw, semi-finished or finished goods and services, dropped by 2.5%(16) compared to the same period last year. However, there was some positive news as third-quarter growth surpassed expectations. Consumption and industrial production turned out to be more resilient than anticipated, resulting in a quarter-on-quarter GDP growth rate of 1.3%(17).

In other news, the International Monetary Fund (IMF) has revised its growth forecast for the United States in October, while lowering it for the Eurozone. The IMF pointed out that the US is set to benefit from a robust business investment climate and resilient consumption, while the Eurozone's growth has been affected by increased interest rates. In the UK, the International Monetary Fund (IMF) responded to the government's rejection of its recent assessment of the economy, which was deemed too negative. The IMF predicts that the UK will experience the highest inflation and slowest growth among all G7 economies next year.

Additionally, the IMF has raised concerns that increased borrowing costs could put certain borrowers in a more precarious position. It has identified around 5%(18) of global banks as vulnerable to stress if rates remain elevated for an extended period. Echoing these concerns, the President of the World Bank has warned that higher rates will complicate the investment landscape for companies and central banks worldwide. It's worth noting that the IMF has maintained its global growth projection of 3%(19) for the year, although it is worth noting that this outlook was formulated before the escalation of the conflict between Israel and Hamas.


The surprise attack on Israel by Hamas and the tightening of sanctions by the US on Russian crude oil sales, caused the price of West Texas Crude oil to increase. At its peak, it briefly reached an intra-day level of over $90(20) a barrel. However, despite oil spiking higher during October it ended the month lower than it started the month. Interestingly, during this period, the Bloomberg Commodity Index was the only asset class that produced a positive return, lifted by precious metal and coffee prices. The index ended the month with a 0.87%(21) increase. Within the commodity cohort, gold was a standout performer rising 7.70%(22) by month end. Gold's rise could be attributed to investors seeking safe haven assets to provide some insurance in their portfolios against the rising geopolitical risks stemming from the Middle East.

Long-dated bond yields rose in the UK, US and elsewhere as sovereign bond yields got to levels unseen since before the global financial crisis of 2008. The UK 30-year gilt yield reached a peak of over 5.1%(23), for the first time since 2002. The US also reached just over 5.1%(24) for the first time since 2007, which saw US 30-year mortgage rates flirt around 8%(25) for the first time since 2000. Rising bond yields put pressure on business loans, mortgages and credit cards, which is spooking investors and raising questions over how long rates can remain high. The resilience of the US economy, along with the belief that it will continue to grow steadily, has led to the expectation that interest rates will remain higher for a longer period. As a result, investors are seeking higher yields when lending to the government for an extended duration. This desire for higher returns is driven by the need to account for the potential risks that may arise while their money is tied up. This additional return is known as the "term premium." The term premium is not easy to quantify, but it is believed to be the main reason for the increasing yields on longer-term government bonds. It serves as compensation for factors such as the growing federal deficit, reduced interest from foreign lenders in owning US Treasuries, and the need for the US Treasury to raise funds and refinance existing debt. All these circumstances put pressure on the government to incentivise investors through higher interest rates.

Equity returns were beseeched by rising sovereign bond yields and an increase in geopolitical risks raised by the Hamas attack against Israel. In the US both the S&P 500 and Nasdaq dipped into correction territory based on closing more than 10% below July 31st high. A correction occurs when a market falls 10% or more in a short time frame. Both indexes attempted to post a turnaround on the last two trading days of the month, optimistic that the Fed rate-setting meeting later in the week would see them kept unchanged. However, the turnaround wasn’t enough to tip them into positive returns for the month. The indexes returned -1.63%(26) and -1.50%(27) respectively. By the end of the month, the MSCI World Index showed a negative return of -2.40%(28). Surprisingly, the UK equity indexes, which have investments in banks and commodity companies, performed the worst during this period. The CBOE UK All Companies index showed a return of -4.39x%(29), largely influenced by concerns regarding higher-than-expected inflation reported in September and emerging tensions in the Middle East. These factors may have adverse effects on commodity prices and could potentially lead to a rise in UK inflation, putting pressure on the Bank of England to increase interest rates in the future. Additionally, UK Mid-caps experienced their worst month in a year. Following closely behind, China was the next worst-performing region, with the MSCI China H Index returning -3.94%(30).

REITS continued to search for a bottom as higher risk-free rates offered investors more certainty given the rise in geopolitical tension through October and the ongoing certainty over China real estate risks of contagion, not helped by the region struggling against deflationary pressures. The MSCI ACWI REITS index returned -2.66%(31).

Growth outperformed Value as an investment style in October, performing less badly than Value stocks.

Considerations for long-term investors

When it comes to preserving the value of your money and shielding it from risks like inflation and geopolitical factors, there are two main approaches you can take: an off the shelf approach or the DIY approach.

The off the shelf approach involves investing in multi-asset funds specifically designed for capital preservation. These funds aim to protect your invested capital while still generating a modest level of return. They achieve this by diversifying investments across different asset classes, such as equities, bonds, cash, and low-risk securities. Diversification helps minimise the impact of poor performance from any single investment on your overall portfolio. The managers of these funds carefully select assets with low volatility and minimal downside risk, avoiding high-risk investments. They may also use hedging strategies to protect against market downturns or unexpected events.

On the other hand, investors can choose to build their own capital preservation portfolios using single asset-focused funds as building blocks. These funds concentrate their holdings in a specific asset class or sector, such as property, bonds, infrastructure, or gold. By allocating investments across different asset classes, investors can achieve a level of protection against volatile market conditions. Each asset class tends to react differently to market fluctuations, so diversification helps preserve capital and reduce overall portfolio risk.

Both approaches are suitable for risk-averse investors, those nearing retirement, or those with short-term financial goals. The off the shelf approach offers a professionally managed solution, while the DIY approach provides investors with more control over their portfolio allocation and risk mitigation. To discover more, take a look at our goals based approach to investing and fund discovery.

1. Nationwide House Price Index, 31/10/2023
2. British Retail Consortium sales growth, 31/10/2023
3. British Retail Consortium sales growth, 31/10/2023
4. EuroZone core inflation,, 31/10/2023
5. EuroZone core inflation,, 31/10/2023
6. Eurozone Gross Domestic Product (GDP) QoQ. 01/11/2023
7. EuroZone Deposit Facility Rate, 31/10/2023
8. U.S. Unemployment Rate, 31/10/2023
9. U.S. Core Consumer Price Index (CPI) MoM, 31/10/2023
10. U.S. Consumer Price Index (CPI) YoY, 31/10/2023
11. U.S. Retail Sales MoM, 01/11/2023
12. U.S. Gross Domestic Product (GDP) QoQ, 01/11/2023
13. Japan Interest Rate Decision, 01/11/2023
14. Bank of Japan - Monetary Policy - Statements on Monetary Policy 2023 - Oct. 31, 2023 PDF. 01/11/2023
15. Japan Tokyo Core Consumer Price Index (CPI) YoY. 01/11/2023
16. China Producer Price Index (PPI) YoY. 01/11/2023
17. China Gross Domestic Product (GDP) QoQ. 01/11/2023
18. IMF Global Financial Stability Report Messages. 01/11/2023
19. International Monetary Fund - World Economic Outlook - Navigating Global Divergences - October 2023, 01/11/2023
20. West Texas Crude (WTI). 01/11/2023
21 - 22. FE Analytics, price spread bid to bid in pounds sterling (for the period 30/09/2023 - 31/10/2023), 01/11/2023
23. British 30 Year Gilt. 01/11/2023
24. U.S. 30 Year Treasury. 01/11/2023
25. St. Louis Fed 30-Year Fixed Rate Mortgage Average in the United States. 01/11/2023
26 - 31. FE Analytics, price spread bid to bid in pounds sterling (for the period 30/09/2023 - 31/10/2023), 01/11/2023

Date of publication: 3rd November 2023

The information in this post is not financial advice, it is provided solely to help you make your own investment decisions. If you are unsure about whether an investment is appropriate for you, please seek professional financial advice. You can find more information here.

When you invest you should remember that the value of investments, and the income from them, can go down as well as up and that past performance is no guarantee of future return.

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