October General Market Comments
“Atomic” – Blondie, 1979
No less than 3 of the largest companies in the world (all part of the famous Mag-7) have announced their will to go “atomic”, nuclear to be precise, to secure their ever-growing electricity needs in the future. Amazon, Alphabet and Microsoft made this bold move in the last few weeks, which marks a massive shift in the way nuclear energy is considered. This used to be the monopoly of Governments, directly or through their state-owned and/or regulated utilities, but the obvious enormous increase in electricity consumption related to data centres is pushing private companies to enter the power generation business. This, added to the space industry also being the subject of private initiatives, constitutes a serious change in domains that were, up to now, Government-led. What’s next is anybody’s guess, but there are chances that the very deep pockets of the Mag-7 and others will drive tectonic shifts in many industries.
The US presidential race has some atomic characteristics as well, but more in the way both candidates behave, while the Q3 earnings season, which has started in October, was more muted than atomic, at least for the big market leaders.
This has to be put in the context of rising long term yields (+50 and + 27 bps for the US and the German 10 year) and elevated valuations. There are no signs of an imminent severe slowdown for the US economy, and Europe’s and China’s difficult economic conditions aren’t new. While credit behaved extremely well despite rising yields (+0.45% for the Itraxx Crossover), equity markets were almost unanimously in the red: the MSCI World lost 2%, the S&P 500 1%, the Stoxx 600 3.4%, the MSCI Emerging Markets 4.4%, and the Chinese CSI300 3.2%. Japan was the sole outlier with a +1.9% return, but the Yen tumbled 6.3% versus the dollar. Oil zigged and zagged and ended the month up 1.6%, leaving again the spotlight to Gold, which added 4.1% and is up 33% year to date.
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