October 2016 Investment Market Update
October was a month of increased market volatility stemming from the run-up to the U.S. election, Russia and OPEC, China and Brexit.
Oil prices saw large swings this month. Earlier in the month the prices spiked when Russia’s president Vladimir Putin proclaimed support of and would participate in OPEC’s agreement to freeze and even cut production. Russia is the biggest producer outside of the cartel. However, despite the optimism of hitting highs, oil closed the month down 3% when U.S. crude stockpiles expanded, exacerbating a glut. In these uncertain times for countries reliant on oil as the main source of income we are seeing nations turning to other means of support. In its debut international bond sale Saudi Arabia raised $17.5 billion.
Britain’s prime minister Theresa May outlined a timetable for Brexit with Article 50, the formal process for leaving the EU starting at the end of March 2017. This caused the British Pound’s value to fall sharply and the FTSE 100 share index (UK share index) to hit it highest level in more than a year. To add further uncertainty Nicola Sturgeon, Scotland’s first minister continues to move forward with its second referendum on Scottish independence.
China’s economy grew by 6.7% in the third quarter, continuing the pace seen in previous quarters this year. China’s government is referencing this growth as evidence that the economy is stabilizing. The growth has been achieved through expanding credit. Corporate debt has increased to $18 trillion and officials are trying to rein it in by allowing firms to swap debt they owe to banks for equity. The Chinese yuan was officially added to the IMF’s basket of reserve currencies.
The run-up to the U.S. election saw market volatility increase with the S&P 500 decline by two per cent and the VIX shoot up 28 per cent. Wall Street does not like uncertainty and after polls showed a tightening presidential race, U.S. stocks began to decline. By keeping rates unchanged and signaling a rate increase at their next meeting in December, the Federal Reserve may have contributed to the market decline.
Neville Joanes is the Portfolio Manager & CCO at WealthBar. Neville oversees portfolio management and investment operations, ensuring that clients’ portfolios meet their objectives. He is dedicated to his goal of always delivering the best investment management to our clients. Neville is also a CFA® charter holder.