Highlights
Just as the first cold mornings of Fall were setting in, investors also felt, in October, their first chill in a long time with market volatility making a comeback early in the month.
Nevertheless, equities still ended the month higher, buoyed in part by strong earnings in the U.S. banking and technology sectors.
While there remains debate about the return on investment for the massive spending on AI research and infrastructure, the example of the emergence of the internet in the early 2000s ultimately offers hope for productivity, although this is already partly reflected in stock market valuations.
Meanwhile, stable oil prices continue to limit upward pressure on inflation, making the Federal Reserve's job a little easier, even if policymakers will probably take their time with rate cuts from here on out.
Overall, the combination of more accommodative monetary and fiscal policies, strong earnings growth, favourable productivity prospects, and stable oil prices are all significant tailwinds for equity markets.
Lastly, while there is reason to believe that gold prices are engaged in a bull market that may last, the previous cycle teaches us that this does not preclude significant setbacks along the way, and the consolidation phase that began in October may need to continue for a little longer.
Bottom Line
After six consecutive months of stock market gains against a background of considerable uncertainty, it is reasonable to temper return expectations. Nevertheless, while the slightly higher volatility seen in October is likely to persist, the overall situation remains largely favourable for risky assets, prompting us to maintain our asset allocation strategy unchanged.