Data source: Bloomberg

Following a robust rally for stocks in the first half of 2023, investors entered the new quarter optimistic that the Fed had orchestrated a soft landing for the economy, and that the era of policy tightening rates would soon end.

Q3 offered something of a reality check.

Developed market equities fell by -3.4% over the quarter, taking year-to-date returns down to a still strong 11.6%. Value stocks proved relatively resilient vs. their more expensive growth counterparts. The gap between the two styles remains wide year to date, however, with growth stocks having outperformed by more than 18% so far in 2023.

 Sources: JP Morgan, Schröder, Bloomberg

In the US

• US equities were weaker in Q3 on continuous worries over the negative effects of interest rate rises on economic growth.
• Energy stocks were relatively resilient over the quarter, and one of few bright spots in a quarter where few sectors avoided falls.
• Most of the so-called “Magnificent Seven” – Apple, Microsoft, Alphabet, Amazon, Tesla, Nvidia and Meta – declined, weighing on the overall market. The IT sector overall was one of the weakest areas over the quarter, along with the less influential sectors of real estate and utilities.

In the Rest of the World

• Asian equities declined in the third quarter as concerns over the Chinese economy and fears over global economic growth weakened investor sentiment.
• Despite a strong start, the MSCI Emerging Markets Index ended the quarter in negative territory, but ahead of the MSCI World. Concerns that strength in the US economy will keep interest rates higher for longer had a negative impact on risk appetite. Russia, nevertheless, benefited from the heavy oil exposure to continue its gains, being now the strongest index YTD (+12.01% since Jan 1).

In the US

• During Q3 the US economy continued to surprise in its resilience, with the labour market remaining relatively robust and signs of improvement in the manufacturing sector.
• August saw Fitch Ratings downgrade the US’s AAA rating to AA+, citing the growing debt burden and an “erosion of governance” as reasons for its decision.
• The Fed raised rates in July by 0.25%, to reach a current range of 5.25-5.5%

In the Rest of the World

• In late July, the Bank of Japan made policy adjustments. There were suggestions that BOJ Governor Ueda could announce an end to negative interest rates in few months. Inflation remained solid, and the continued weakness of the yen further supported such market expectations.
• In China, investors have no visibility on whether Beijing will deliver enough stimulus to put the world’s second-largest economy back on track. Although China’s official PMI manufacturing index rose in August it marked the fifth straight month of contraction. 

• The US dollar strengthened against major currencies, reflecting the positive growth momentum.

• Bitcoin and Ethereum were down this quarter by -11.5% and -13.6%, respectively. This puts Bitcoin up 63% year-to-date, still one of the best performing assets in 2023. News related to US regulation was a key driver of price movements this quarter, with SEC losing actions in the headlines.  Meanwhile, regulatory filings for spot ETFs by some of the world’s largest asset managers introduced a lot of price moves around the potential approval dates.

• September marked the one-year anniversary of Ethereum’s successful transition to a ‘Proof of Stake’ consensus mechanism. This reduces the amount of computational work needed to verify blocks and transactions, effectively eliminating its carbon footprint.

• Commodities were a notable outperformer in Q3.

• The S&P GSCI index rose sharply driven by significantly higher energy prices after Russia and Saudi Arabia cut oil production.

• Energy was the best-performing sub-sector, in which natural gas was the only segment to record a price fall in the quarter.

• The industrial metals component achieved modest gain in Q3, with price gains for zinc, lead and aluminium offsetting weaker prices for nickel and copper.

• The agriculture component ended the quarter in negative territory, with weaker prices for wheat, corn, soybean and coffee offsetting substantial price gains for cotton and sugar.

• Precious metals was the worst-performing component of the index in the third quarter, with weaker prices for both gold and silver.

Darrell Cronk, CIO at WellsFargo Investment Institute

“ We still believe the Fed has one more interest rate hike left. But clearly markets have begun to turn their focus from how many more hikes are left to how many interest rate cuts may happen next year. ”

JP Morgan Global Market Strategy

“ It looks more likely that the SEC would be forced to approve the spot ETF applications that are still pending from several asset managers, including that from Grayscale”

22nd October: Swiss Federal Election

Switzerland has had an early federal election, which will involve the selection of new members of the National Council and Council of States. The election will be followed by elections to the Federal Council.

What we can expect: 

The Swiss People’s Party, a right-wing populist party, scored one of its best results ever in national elections, reaping the rewards of a campaign that leveraged concerns over immigration and purchase power.

26th October & 14th December: ECB Monetary Policy Meeting 

The Governing Council is the main decision-making body of the European Central Bank. They take decisions, adopt the guidelines, and formulate monetary policy for the euro area.

What we can expect: 

We will most probably see the three key ECG interest rates increase. The current rates are between 4.0% and 4.5%.

1st November & 12th December: FOMC Meetings

The FOMC (Federal Open Market Committee) is the branch of the Federal Reserve that decides on the monetary policy on the United States.

What we can expect: 

We will most probably see an interest rate hike in one of the two meetings.

1st-12th December: United Nations Climate Change Conference (COP28)

The United Nations Climate Change Conference aims to address and advance global climate action, fostering international cooperation and agreements to mitigate the impacts of climate change. The COP28 will be held in the United Arab Emirates.

What we can expect: 

Key topics for discussion at COP28 include climate commitments, health and relief efforts, climate finance, sustainable energy, urbanization, youth engagement, ecosystem preservation, and climate-resilient agriculture. Additional issues may also arise during the conference.