Monthly Markets Review – October 2020

A look back at markets in October when Covid-19 lockdowns were reintroduced in much of Europe and investors awaited the US presidential election.

  • Global equities declined in October. The US presidential election and rising Covid-19 cases in many countries, notably across Europe, were the main focus for investors. Corporate bonds outperformed government bonds.
  • US shares fell amid rising Covid-19 cases, uncertainty over the presidential election and lack of progress on further fiscal stimulus.
  • Eurozone shares declined, underperforming other regions, as Covid-19 infections rose sharply and a number of countries reintroduced national lockdown measures.
  • UK equities fell amid renewed fears around a pick-up in Covid-19 cases. At the very end of the month, the UK government abandoned a tiered system in favour of uniform restrictions across England.
  • Japanese shares declined, largely due to the renewed uncertainty affecting other global regions. Japan’s success in containing the virus saw it announce measures to encourage consumer spending in restaurants.
  • Emerging market equities gained due to expectations of additional fiscal stimulus in the US. The prospect of more stable trade relations with the US under a potential Biden presidency also proved beneficial.
  • In fixed income , the US 10-year yield rose (meaning prices fell) which seemed to reflect rising hopes of economic stimulus. However, European yields fell (i.e. prices rose) as Covid-19 cases increased and lockdowns returned.
  • Commodities registered a negative return. Energy was the weakest component with crude oil falling sharply on concerns over weaker demand related to the coronavirus.

Please note any past performance mentioned is not a guide to future performance and may not be repeated. The sectors, securities, regions and countries shown are for illustrative purposes only and are not to be considered a recommendation to buy or sell.


US equities declined in October, primarily due to the continued rise in Covid-19 cases in many states. Market optimism over additional fiscal stimulus also waxed and waned, contributing to stock market movements. As the deadline for stimulus negotiations drew near, the unpredictability of the 3 November presidential election added to the wider sense of uncertainty. President Trump hinted more than once that stimulus would be announced post the election, should he win a second term.

From an economic perspective, data continued to indicate industrial activity was expanding in both the manufacturing and service sectors. Initial jobless claims also reached their lowest number since March. Even so, the Federal Reserve (Fed) maintained the message that it will keep rates unchanged until inflation stabilises at 2%, and will tolerate a moderate overshoot. Further, the Fed reiterated that additional fiscal stimulus was required.

The utilities sector – a relatively small component of the S&P 500 – was among the strongest performers in October, while the more significant communications sector made modest gains. All other sectors fell to one extent or another, with the technology, energy and healthcare sectors among the weakest areas of the market.


October saw shares fall in the eurozone as several countries reintroduced lockdowns to try and contain rising Covid-19 infection rates. France introduced a strict new national lockdown while partial lockdowns were announced in several other countries including Germany and Belgium. The European Central Bank kept monetary policy unchanged but indicated that more stimulus measures are likely to be announced at the next policy meeting in December.

Data showed that the eurozone economy expanded by 12.7% in the third quarter of 2020 as activity rebounded over the summer. However, this still leaves the economy 4.3% smaller than it was at the same time last year and expectations are that the new lockdowns will weigh on economic activity in the coming months. Indeed, business activity contracted in October according to the Markit composite purchasing managers’ index (PMI) which fell to 49.4. from 50.4 in September. 50 is the level that separates expansion in business activity from contraction. The PMI surveys are based on responses from companies in the manufacturing and services sectors. Annual inflation remained stable at -0.3% in October.

October saw the bulk of Q3 corporate earnings’ releases. These were largely positive, with many companies beating expectations. Nevertheless all sectors ended the month in the red. Information technology was among those seeing the steepest falls. German software company SAP cut its revenue and profit forecasts for the year. The energy sector also fell sharply with lockdowns likely to mean reduced demand for oil. The telecommunication services sector was among the more resilient over the month.


UK equities fell over the period amid renewed fears of a pick-up in Covid-19 cases. Policymakers in Wales and Northern Ireland used devolved powers to implement new countrywide lockdowns, while Scotland introduced a tiered system. At the very end of the month, the UK government abandoned its own tiered system in favour of uniform restrictions across England, to run initially for four weeks from 5 November until 2 December.

In response to these events, the UK government announced it would extend the Coronavirus Job Retention Scheme, or furlough scheme, until December. Employees will receive 80% of their current salary for hours not worked, up to £2,500 a month. This scheme was due to be superseded by the Job Support Scheme (JSS) in November, as part of Chancellor Rishi Sunak’s “Winter Economy Plan”. 

Expectations built that the Bank of England (BoE) would use its November policy meeting to extend quantitative easing. It also emerged that the bank’s deputy governor, and CEO of the Prudential Regulation Authority, Sam Woods wrote to UK banks to ask them how ready they might be for negative interest rates.


The Japanese equity market lost ground for most of October, ending the month 2.8% lower. The yen moved steadily stronger against the US dollar, which had a slight negative impact on sentiment.

Style factors had a smaller influence on overall performance in October, although small cap stocks were weaker than the overall market, reversing some of the sharp outperformance seen in September.

With few new incentives domestically, the primary market drivers came from pre-existing factors, including the global resurgence of Covid-19, the US presidential election, and the likelihood of additional fiscal stimulus in major economies.

Japan’s experience of Covid-19, in terms of incidence and mortality, continues to be markedly different from the US and Europe. As a result, the government has been able to continue to encourage private consumption through its “Go To” campaign for domestic travel. In October, this was supplemented by the launch of “Go To Eat” discounts to support local restaurants in each prefecture. Domestic economic data continues to reflect a slow but steady recovery after a downturn seen earlier in the year that, although severe, was less dramatic then many other countries.

The corporate results season for the June to September quarter started in late October. Initial indications are good, with a significant proportion of companies beating consensus estimates. Although the full picture will not be clear until November, the announcements made so far seem to support further upward revisions to profits across many sectors in the second half of this fiscal year.

Asia (ex Japan)

The MSCI Asia ex Japan Index delivered a positive return in October, comfortably outperforming the MSCI World Index. Nearer month-end, worries about Covid-19 resurfaced as did US election uncertainty. Indonesia was the best-performing index market, as parliament passed the Omnibus Law which incorporates a number of labour market and tax reforms. The Philippines, where Covid-19 related restrictions were eased, and China also delivered strong gains and outperformed the index. Hopes of a Biden win in the US election – and potentially a smoother road forward for US-China relations – were supportive of Chinese equities, as was the performance of its internet companies and a number of positive Q3 earnings surprises.

Taiwan, India and Korea all finished in positive territory but underperformed the index. Earnings forecasts for Taiwan’s companies increased as the outlook for growth improved. In India, the number of daily new cases of Covid-19 continued to fall after the peak in the middle of September. The weakest index market was Singapore followed by Thailand, and Malaysia and Hong Kong SAR also lagged behind.

Emerging markets

Emerging market (EM) equities posted a solid gain as expectations for additional fiscal stimulus in the US increased. It followed a widening of Democratic Party candidate Joe Biden’s lead in opinion polls, ahead of the 3 November election. The MSCI Emerging Markets Index increased in value and outperformed the MSCI World.

Indonesia was the best performing EM market, as the approval of the Omnibus Law boosted sentiment. The Philippines, where Covid-19 restrictions were further eased, Mexico and China were the only other markets to outperform the EM index. In China, strong performance from internet stocks was beneficial. The prospect of more stable trade relations with the US under a prospective Biden presidency also proved supportive for stocks.

By contrast, Poland recorded a negative return and was the weakest market in the index. Daily new cases of Covid-19 accelerated and, later in the month, protests against the government broke out across the country. Greece and Turkey also finished firmly in negative territory and underperformed the index.

Global bonds

Markets were volatile in October, with mixed performance from bonds. Corporate bonds held up well overall. Concerns around Covid-19 were heightened. A resurgence of cases in Europe resulted in renewed lockdowns in Germany and France toward month-end and case numbers remained elevated in the US.

The middle of the month saw a burst of investor optimism as US politicians said negotiations over a stimulus package were progressing. Democrat presidential candidate Joe Biden, who favours a large stimulus, continued to lead in the polls. Sentiment reversed sharply in the last week of the month, on concerns over Covid, with the US dollar gaining against the euro and finishing slightly higher on the month. 

Government bonds diverged over the month. The US 10-year Treasury yield rose by 19 basis points (bps) to 0.87%, with the 2-year to 10-year yield curve steepening by 16bps (rising yields mean falling prices). Aside from expectations of stimulus, US data was reasonably positive. Weekly jobless claims fell below 800,000 for the first time since March.

European 10-year yields fell by 10bps across the board amid the continued resurgence of Covid-19. Germany’s 10-year yield finished at -0.63% and France’s at -0.34%. In the “periphery”, Italy’s 10-year yield dropped to 0.76% and Spain’s to 0.13%. The UK 10-year yield was 3bps higher at 0.26%. Economic indicators for Europe and the UK pointed to a loss of momentum, with Europe dipping back into contractionary territory.

Corporate bonds outperformed government bonds. US investment grade debt saw a marginal negative total return (local currency), as yields rose, but was comfortably ahead of US Treasuries. Eurozone investment grade returned 0.8%. Corporate bonds held up relatively well amid the sharp reversal in sentiment in the last week of the month (Source: ICE BofAML).

The performance of emerging market (EM) bonds was mixed. Hard currency (US dollar)-denominated bonds were flat after a late pullback, mainly in high yield, while EM corporate bonds made a modest positive return. Local currency bonds were also moderately positive. EM currencies were again mixed, but slightly higher overall. The Chinese renminbi and Thai baht performed well, while the Turkish lira and Brazilian real weakened.

Convertible bonds proved very resilient versus equities. The Thomson Reuters Global Focus index, which measures balanced convertible bonds, registered a positive return in the falling equity market environment. The index returned 0.4% compared to -2.5% for the MSCI World global equity index. Convertible bond valuations became slightly more expensive, albeit from a low base.


Commodities, as measured by the S&P GSCI Index, registered a negative return. Energy was the weakest component with crude oil falling sharply on concerns over demand related to the coronavirus. Livestock and precious metals also lost ground, though they fell by less than the index. Industrial metals rose, aided by strong gains for copper and zinc, and agricultural commodities posted positive returns.

The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

Monthly Markets Review – April 2020

A look back at markets in April, when shares rebounded supported by stimulus measures and hopes that lockdowns could ease.

  • April saw global equities rebound as investors began to focus on expectations that economic lockdowns could soon ease and economies start to recover.
  • US shares gained. The S&P 500 Index saw its strongest monthly rally in 30 years, shrugging off negative data indicating sharply rising unemployment.
  • Eurozone equities advanced as some countries began to allow some parts of the economy to reopen. The healthcare and information technology sectors were among the top gainers.
  • UK equities recovered over the period. The government declared the country had passed the peak of Covid-19 and began preparations to ease lockdown measures.
  • Japanese shares also gained as investors focused on the global picture; however, a gradual increase in Covid-19 cases led to a state of emergency being declared by the central government.
  • Emerging market (EM) equities advanced too but slightly underperformed developed markets. India and Pakistan were the best performing markets in the EM index, supported by easing from their central banks.
  • Government bonds broadly declined (meaning prices rose), although Italy was an exception. Corporate bonds outperformed government bonds.

Please note any past performance mentioned is not a guide to future performance and may not be repeated. The sectors, securities, regions and countries shown are for illustrative purposes only and are not to be considered a recommendation to buy or sell.


US equities gained in April, even as economic data continued to illustrate the severe impact the lockdown has had on activity. US initial jobless claims totalled over 20 million for April alone, and the tally since the Covid-19 outbreak began is over 30 million. Figures in late April pointed to an unemployment rate of around 17%. USD GDP growth was down by 4.8% in Q1. Schroders’ economics team expects a further fall in GDP in Q2 of 22% quarter-on-quarter (not annualised) as the lockdowns extend into May.

The Federal Reserve (Fed), having eased the policy rate twice, will keep it at the effective lower bound until members are confident that economic activity is back on track towards full employment and the 2% inflation target. The latter is expected to be delayed by dollar strength, weak demand and a flattened oil price.

Despite this economic backdrop, the S&P 500 Index registered its strongest rally in 30 years in April, following unprecedented stimulus delivery and signs of lockdown easing in some states and in Europe. Two of the hardest-hit sectors over Q1 rallied very strongly, with materials and energy both making strong gains over the month. Consumer discretionary stocks also moved higher. The recovery for financials and industrials, which also saw major declines in the first quarter, was more tentative, with many questions over the ramifications of Covid-19 still unanswered for these sectors. Utilities and consumer staples rose slightly, underperforming the index.


After a sharp fall in the first quarter, eurozone equities fared better in April with the MSCI EMU Index returning 6.5%. While many countries across Europe remain in lockdown to combat the spread of Covid-19, investors began to look through the current phase of the crisis. Towards the end of the month, various European countries began either to loosen lockdowns, or to outline how economic activity might re-start over the coming months. Hopes for progress on a vaccine also helped lift stock markets. 

The energy sector posted a negative return as oil prices continued to be under pressure amid reduced demand and excess supply. All other sectors saw positive returns. Healthcare and information technology were among the top- performing sectors while some of the best-performing industry groups included transportation as well as automobiles and components, which had been hard hit in Q1.

Preliminary data showed that economic growth contracted by 3.8% quarter-on-quarter in the eurozone in the first three months of 2020, as measures to contain Covid-19 were widely introduced in March. Annual inflation was estimated at 0.4% in April compared to 0.7% in March. The flash composite purchasing managers’ index (PMI), which measures business activity, hit a new record low of 13.5 in April, down from 29.7 in March. The PMIs are surveys of the manufacturing and services sectors. A reading above 50 suggests economic expansion, while a reading below 50 suggests contraction.


UK equities recovered over the month. Small and mid cap equities outperformed, reversing some of the underperformance seen in March when UK lockdown measures were implemented in response to Covid-19. Larger companies lagged behind, particularly the oil and gas sector after Royal Dutch Shell cut its dividend for the first time since World War Two in response to lower crude oil prices.

The Office for Budget Responsibility (OBR) published an assessment of the potential impact of Covid-19 on the UK economy and public finances. This suggested that the economy could suffer a 35% plunge in Q2 output were the lockdown to remain in place throughout the quarter. A deep recession, in combination with the costs of various policy interventions, saw the OBR estimate that government borrowing would increase to around 14% of GDP.

Forward-looking indicators pointed to a precipitous fall in activity over April, with the flash IHS Markit/CIPS composite purchasing managers’ index falling to 12.9 from 36.0 in March. At the end of the month, the UK prime minister Boris Johnson returned to work after being hospitalised suffering from Covid-19. Johnson declared that the UK was “past the peak” of the crisis and said the government was working on plans to ease lockdown measures and restart the economy.


After some large swings early in the month, the Japanese market settled into a steadier trading pattern in the second half of April, and ended the period with a positive total return of 4.3%. The yen was also less volatile, and gradually strengthened against the US dollar.

Investors seemed to react more to evidence of a peak in virus cases globally, rather than any specific news regarding restrictions in Japan itself. As a result, economically-sensitive stocks tended to outperform while domestic-focused stocks such as retailers and utilities tended to lag behind the overall market rise. The weakest area was airlines, as concerns mounted over their inability to restart profitable services in the medium term – even when lockdowns begin to ease. Smaller companies were very weak relative to the overall market in first few days of April but gradually recouped much of this decline over the rest of the month.

Compared to other developed countries, Japan continues to experience a rather different trajectory of recorded virus cases and mortality. However, a gradual increase in cases and some potential stress within the health service led to a state of emergency being declared by the central government across seven prefectures of Japan, including Tokyo, which was later extended nationwide. Even now, however, the practical restrictions on social and business activities are still far less restrictive than those seen in Europe.

The lighter restrictions meant economic data for March was generally less awful than expected. This had little market impact, however, as most data was viewed as being out-of-date even before it was released and sentiment was driven more by events on a day-to-day basis. More forward-looking PMI surveys still suggest that the economic impact on Japan, while very negative, is still somewhat less severe than it is in Europe or the US.

The Japanese government continued to step up its fiscal response to the crisis through extensions of the initial supplementary budget. One specific move in April was to replace the initial plan for support payments to affected individuals with a much simpler one-off payment of ¥100,000 to all residents, regardless of income.

Asia (ex Japan)

Asia ex Japan equities rallied in April as fresh stimulus from major central banks and signs of stabilisation in new Covid-19 cases in the US and Europe served to improve sentiment. The MSCI Asia ex Japan Index increased in value but modestly underperformed the MSCI World Index.

Pakistan and India were the best-performing markets in the index as their respective central banks provided additional support. Low crude oil prices were also beneficial to both countries, while Covid-19 case fatality rates remained low relative to rates seen in other countries. The export-oriented markets of Taiwan and Thailand also outperformed amid optimism for a recovery in global demand in the second half of the year, as did Indonesia where currency appreciation underpinned returns that were above the MSCI Asia ex Japan Index.

By contrast, China lagged the regional index, having strongly outperformed in March. Q1 GDP shrank by 9.8% but there were positive signs of recovery in monthly data for March, while Hong Kong and Malaysia also finished behind the index. South Korea underperformed by a smaller margin.  

Emerging markets

Emerging market (EM) equities rebounded in April, buoyed by an expansion of stimulus from global central banks and signs of a flattening or a reduction in the rate of new Covid-19 cases in Europe and the US. The MSCI Emerging Markets Index increased in value, posting its strongest monthly gain in four years, though it underperformed the MSCI World Index.  

Pakistan and India were the best-performing index markets. Pakistan’s central bank cut its key policy rate by 200bps to 9% at an emergency meeting. In India, the governor of the Reserve Bank of India (RBI) announced that it would do “whatever it takes” to support the economy. The RBI cut the reverse repo rate by 25 basis points (bps) to 3.75%, and launched a special liquidity fund for mutual funds. Low crude oil prices were also supportive, while Covid-19 case fatality rates in both countries remained low relative to other countries. A number of EM markets sensitive to global trade outperformed the index, including Thailand and Taiwan.

By contrast, Mexico and Turkey registered more modest gains and were the weakest index markets. Currency weakness was a drag on equity returns in both countries, notably in Turkey. In Mexico, new daily Covid-19 cases accelerated. In response, the central bank cut its main interest rate by 50bps to 6%. In Turkey, meanwhile, the central bank reduced its key policy rate by 100bps to 8.75%, despite registering ongoing above-target inflation. China also lagged behind, having strongly outperformed in March. Q1 GDP fell by 9.8% q/q but higher frequency data for March indicated a recovery, in particular industrial production.    

Global bonds

Government bond yields broadly declined in April, but with some regional divergence. Investor sentiment improved markedly, driving a strong rebound in riskier assets. The more positive mood seen in late March continued into April, gaining support from further policy announcements from central banks, including the Fed widening the scope of its corporate bond purchases.

There was some regional divergence, potentially reflecting disparate policy responses. The US 10-year Treasury yield was three basis points lower at 0.64% on the month, underperforming Germany and the UK, having fallen substantially in March. The Fed began reducing its weekly purchases of Treasuries in the second half of the month, though the policy committee kept rates unchanged and affirmed a continuation of policy support.

In Europe, the German 10-year yield fell from -0.47% to -0.59%, while Italy was a notable laggard, with its 10-year yield rising from 1.52% to 1.76%. Progress towards a more coordinated response in the region remained slow. However, the ECB announced further support measures through its lending operations and pledged to increase asset purchases as necessary.

Corporate bonds outperformed government bonds with global investment grade (IG) seeing its strongest monthly total return (local currency) on record, at 4.6% (source: ICE BAML). The IG spread (the difference in the yield of a corporate bond versus a similar maturity government bond) tightened by 73 basis points (bps). Investment grade bonds are the highest quality bonds, as determined by a credit ratings agency, while high yield bonds are more speculative, with a credit rating below investment grade.

Global high yield saw a total return (local currency) of 4.5%, the second highest on record. The energy sector led the way, especially in the US, rebounding from the heavy sell-off seen in March.

Emerging market (EM) debt produced positive returns, with corporate bonds performing well, and EM currencies gaining. The Indonesian rupiah and Russian rouble were among those to bounce back.

Global stock markets saw a strong recovery rally in April. Convertible bonds, as measured by the Thomson Reuters Global Focus index, benefitted from the tailwind and were up 6.2%. US and European convertibles became slightly more expensive in April with discounts to be found in Japanese and Asian convertibles.


The S&P GSCI Index recorded a slightly positive return in April. The precious metals component registered the strongest gain as gold and silver spot prices advanced by 6.9% and 7.1% respectively. Energy contributed positively, aided by a rise in Brent crude oil prices. However, this masked major volatility in the oil sector over the month. WTI, the US benchmark, was down 8% with the price of the front month contract – i.e. oil for May delivery – turning negative due to weak demand and limited storage capacity. Industrial metals advanced, supported by a 4.5% pick up in copper prices. These gains were offset by weakness from the agriculture component, with coffee, corn and wheat prices seeing the largest falls.