October in Review
October was another confusing month for investors who were searching for certainty. With the Covid outlook improving, and news about promising treatments, investors expected an increase in growth. This is evidenced by the October SPX having its largest monthly gain since November of 2020. Rates moved higher as well, but investor uncertainty of future growth was driven by inflation and increased fear of central banks increasing rates sooner than expected. This led to a sharp flattening of yield curves in October and caused pain to many macro funds, who were positioned the other way. Two-year TIPS break-evens were up 54bps in October. This caused two-year rates in the US to be up 22bps, which was the largest monthly increase since 2018. During the “Covid period” of 2020 and 2021, higher expected growth lead to stocks, yields and inflation expectations higher. Additionally, value outperformed growth, beta performed well, and the equal weight SPX outperformed the capital weighted SPX Index. We did not observe those same trends in October due to movement in the yield curve, which impacted growth expectations at the expense of fighting inflation expectations. The equity bucket was flat and the macro bucket was slightly positive for the month. Our internal view is that October will mark the peak in bottleneck and inflation fears. We believe this will calm things as we enter the final two months of the year and resume a broader opportunity set as growth remains robust and the fears over inflation subside, leading to more dispersion.
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