October served as a reminder of the turbulence that can come with global markets. Mixed economic signals and heightened geopolitical tensions contributed to a sense of uncertainty, leading to a negative month for global equities after a strong year-to-date rally. Major indices ended the month lower, with rising yields and growing concerns over global debt levels pushing investors towards safe-haven assets like gold and the U.S. dollar.
Global Markets
October saw U.S. equities experience a modest pullback, breaking a five-month streak as the S&P 500 slipped by 0.9%. Both the Nasdaq Composite and Russell 2000 posted losses, with small-cap stocks lagging behind large-cap counterparts. Non-U.S. equities experienced steeper declines, with European markets down 3.6% (STOXX Europe 600), particularly affected by weaker economic data out of Germany. Reflecting this broader downturn, the MSCI All Countries World Index (ACWI) fell by 1.1% (NZD-Hedged), capturing the general weakness across developed and emerging markets.
In the bond market, Treasury yields surged as concerns over rising debt levels, deficit pressures, and political uncertainty overshadowed the Federal Reserve’s September rate cut. The 2-year and 10-year yields both increased by around 50 basis points, to 4.2% and 4.3% respectively, marking the largest monthly selloff in Treasuries since September 2022. As a result, the Bloomberg Global Aggregate Bond Index (NZD-hedged) declined by about 1.5%.
The U.S. dollar saw a resurgence, buoyed by rising Treasury yields and demand for safe-haven assets amid geopolitical tensions. Relative to the US dollar, the New Zealand dollar weakened, dropping from 0.63 to 0.60 USD, which provided some relief for unhedged investors by offsetting equity market losses. The unhedged global index, MSCI ACWI, rose by 4.5% in NZD.
New Zealand Markets
In early October, the Reserve Bank of New Zealand (RBNZ) continued its rate-cutting cycle with a 50-basis point reduction. This came as annual inflation for Q3 fell to 2.2%, well within the RBNZ’s target range of 1-3%, strengthening the case for further easing. Business confidence continued to climb, with the ANZ’s Business Confidence Survey increasing for a fourth month in a row. This optimism is a positive sign for future domestic investment.
Meanwhile, the NZX50 Index delivered a gain of 1.7% for the month, a bright spot in diversified portfolios. Domestic bonds were relatively stable, with a return of -0.5% for the month, outperforming global bonds.
Aurora Fund Performance
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Past performance is not a reliable indicator of future performance. The value of your investment may go up and down.