Market Review for October

Hamesh Sharma

11 March, 2024

5 min read

Market Commentary

It was another rough month for share markets in October, as the US S&P 500 index fell by 2.2% over the month, officially entering market “correction” territory, down 10% from the July peak. Closer to home, the New Zealand market (NZX 50 index) lost 4.8%, while across the Tasman the Australian market (ASX 200 index) was 3.8% lower. There was nowhere for investors to hide, with interest rates trading higher, bond markets also came under pressure - the US 10-year rate briefly traded up through the 5% mark for the first time since 2007. As we touched on last month, this rate is considered the closest thing to a global “risk-free” asset which many investors use as a reference price to value assets, and as such, all asset prices have come under pressure. A partial driver for why US interest rates spiked was that US growth remains robust; GDP expanded 4.9% year on year as the economy blew past estimates in the third quarter, albeit on a consumer spending burst that may not last.

Below you can see our current fund performance, swipe right to left to see full table.

Fund Performance at a Glance (after fees, before tax)
1 momth 6 months 1 year 2 years p.a 3 years p.a 5 years p.a since inception Start date
Ethical Growth Fund -1.8%
Global Responsibility Fund
Global Water Fund

In contrast, November month to date has been a very different story. The US share market has rebounded 7% at the time of writing from its low on 27 October, and the US 10-year interest rate has retraced from 5% to 4.6%. The rebound has occurred as investors digested a 3rd quarter corporate earnings period that mostly came in above expectations, a dovish (less aggressive) tilt from the US Federal Reserve and a lukewarm US jobs report. The US economy is 70% driven by the consumer, so jobs are a critical indicator of economic health. The labour market has shown incredible strength although has appeared to be slowing its pace of hiring through 2023. After the September spike, the October jobs/ employment number was weak and came in below expectations, plus the prior two months were revised downwards. This, combined with a dovish tilt in Fed commentary has reduced the probability of a hike in December to a mere 5% (from 30% a month ago) and interest rates have retraced. Despite the geopolitical backdrop, oil has slid from the $90 level in late October to mid-$70’s today, which, while not great for oil companies, is disinflationary for the economy. During corporate earnings season, each quarter the focus for investors shifts the spotlight back towards company profitability. The key takeaway is that revenues were slightly below expectations, but margins were better as companies are implementing sound cost control. Some companies had better results than others, and we have chosen to exit SolarEdge from our global portfolio. Clean energy and solar stocks have had a rough year as higher interest rates and other input cost issues have led to weaker margins and some excess inventories. Weaker orders forced the company to slash revenue guidance from recent $900m levels to $300-350m levels in the 4th quarter. Wary of the length of the inventory readjustment and feeling overexposed to the sector we decided to concentrate on the higher quality operators and continue to own First Solar & Enphase instead. We will revisit if re-entry makes sense in coming quarters as renewable energy, in particular solar power, remains one of our core medium term investment themes. Overall, we remain invested at the ~90% growth exposure level. We still feel like the tension between higher rates and a slowing macro coupled with high earnings expectations is hard to align and this will continue to generate volatility to navigate over the coming months.

Hamesh Sharma

Hamesh joined Pathfinder in April 2019 and primarily manages Australasian equities. Hamesh has 10 years’ financial markets experience, beginning his career as an analyst in the investment strategy team at Goldman Sachs JBWere, after a summer at the Reserve Bank of New Zealand. Prior to Pathfinder, he co-founded an independent stock market research firm. Hamesh holds a BCom (Hons)/LLB from Auckland University.