As the northern hemisphere headed firmly into autumn, the October news flow was dominated by two topics: the resurgence of Covid-19 in Europe, and the upcoming US elections. Markets spent much of the month in wait-and-see mode, before the announcement of widespread restrictions across Europe in the final days of the month tipped the balance of risks to the downside.

Europe is unfortunately suffering a second wave of coronavirus infections with all major economies now reporting new highs in infection rates. The policy response was originally much more targeted than that seen in the spring, with governments imposing local restrictions in a bid to avoid national lockdowns. Sadly this approach appears to have had limited success with a number of countries now re-imposing national-level restrictions. Against this backdrop, high-frequency measures of European activity have started to move lower as containment measures take hold. Survey data have also highlighted a bifurcation between the manufacturing sector, which has continued to recover, and service sectors, which are once again subject to restrictions. This will bear watching to see if the trend continues as lockdowns tighten.

The perennial issue of Brexit also re-emerged last month, with the European Council meeting on 15-16 October (which was previously seen as a key deadline) passing without a deal being struck. After negotiations were briefly paused, talks are now intensifying as both sides seek to agree on a trade deal before the year-end.

In the US, while the virus has remained prevalent the news flow has focused primarily on the upcoming elections. Over the month the Democratic nominee Joe Biden extended his lead in the national polls and ended October eight points ahead, as well as holding his lead in a number of the key swing states. Markets responded positively to polls indicating an increased likelihood of a Democratic sweep of the House, Senate and the presidency against a backdrop of continued gridlock in Washington on a new fiscal package. The pandemic has changed the market’s focus this year. While earlier in the summer the potential for tax hikes under a Democrat sweep was viewed with some caution, a clear-cut outcome that unlocks fiscal stimulus in the near term is now viewed as the most pressing issue.

Positive gains in US and European stocks over the first few weeks of October were erased in the last week of the month, as market volatility spiked in reaction to new lockdowns. The S&P 500 ended October down -2.7%, while Europe ex-UK stocks were the biggest laggard, down -5.4%. Asia was the regional winner, with strong Chinese data helping emerging market stocks to return 2.1% over the month. In fixed income, US 10-year Treasury yields rose by 18 basis points, while European virus concerns pushed 10-year German Bund yields 10 basis points lower. Corporate bonds were broadly flat, with returns of -0.1% for global investment-grade credit. (source)

Here is a list of the Top Performing Funds (track record >1 year, AUM> $100m) in October 2020 at the time of this writing.
(Data provided by Morningstar.)