Monthly and quarterly market insights 

Markets can move rapidly and conditions can change based on macro- and micro-economic news and data. At times, it can be difficult to keep up and to determine the important information from the noise.

Our global investments analysts and researchers, and market and asset class specialists, are constantly monitoring markets to identify the most important developments potential opportunities. 

Our monthly and quarterly insights reports provide a summary of what we believe to be the most significant news points and market movements and attempt to explain them, aiming to keep you on track and informed while still allowing you to keep a focus on the long term.

Equities and other growth assets maintained the positive momentum from October. The main driver of improved investor confidence in November was a better than expected US inflation reading, which strengthened hopes that monetary tightening may slow down later this year and into 2023.

The overall economic outlook remained soft. Purchasing manager indices remain in contraction territory, and layoffs are increasing. Some regions, such as the UK and Europe, appear to be in a recession already. However, investors took this as a sign that monetary policy tightening is now taking effect, which should allow the Federal Reserve to slow down the pace of monetary tightening, with better than expected inflation figures in the US strengthening this conviction.

This continued to fuel the rally in equities that began in October. A weaker dollar boosted returns for international equities further, which outperformed the US on a local currency basis as well. Emerging market equities were driven by their own dynamics, as rumours of an easing in COVID restrictions as well as the announcement of meaningful support to the ailing property sector led to a massive rally in Chinese equities. Uncertainty returned later in the month when an increase in COVID restrictions led to unrest.

Fixed income returns were positive. Lower real yields supported bond returns across the board and falling credit spreads gave additional boosts to investment grade, high yield credit and emerging market debt. Lower real yields also allowed gold to make a comeback.

Commodities had a strong month in spite of falling oil prices. Russia rejoined the deal allowing the safe passage of grain from Ukraine, which among other factors led to a decline in wheat prices.

There were a number of political events over the month, some impacting markets more than others. Changing perceptions on the future path of China’s COVID restrictions led to some volatility. Meanwhile, US midterm elections did not have a major market impact as a split government was widely expected. Talks between President Biden and President Xi were seen as an encouraging step towards preventing a further deterioration in the relationship between the world’s two largest economies.

The US dollar weakened substantially in November as risk on sentiment reduced demand for safe haven assets. At the same time, an expected slowdown in the pace of monetary tightening made US dollar less attractive relative to other.

Global markets continued their downtrend in the third quarter. Fed Chair Powell’s speech at Jackson Hole in August dashed hopes that the Fed would consider pausing its tightening cycle. After recovering in July, both equity and bond markets broke through June lows.

As a result of hawkish Fed guidance, bond markets ratcheted up expectations for this cycle’s terminal interest rate from 3.25% at the end of July to 4.5%, which rippled through the yield curve. The 10-year Treasury yield briefly reached 4% in late-September, ending the month at 3.8%.

The Bloomberg Aggregate Bond Index fell a further 5% in Q3, leaving it down 15% this year. The MSCI ACWI index fell 7% for the quarter and 25% this year. The simultaneous drawdown in both stocks and bonds has left a traditional 60/40 portfolio down 21% year-to-date¹.

¹Source: Bloomberg; as of 9/30/22

On October 6, 2022 Mercer held its quarterly market update webinar, which covered recent market conditions and the outlook.