Stocks shrugged off bond market volatility and poor earnings last week to finish higher and remain in positive territory for the month. Traders have been paying close attention to Fedspeak, looking for insights into a potential slowdown in the rate-hiking cycle. Comments from St. Louis Fed President James Bullard and San Francisco Fed President Mary Daly suggest that the committee will debate how high to raise rates to combat inflation and when to slow the pace of increases at the November 1st and 2nd meeting. Global equity inflows have picked up recently with $9.2 billion in equity funds through October 19. Cash funds saw additional inflows of $14.5 billion while $12.2 billion left bonds, and gold redemptions reached $1.5 billion. However, Bank of America strategists warned that markets have not reached "final capitulation" and that there is still more room for equities to fall as corporate earnings estimates have not yet fully captured the risk of slowing global growth.
The prime minister's 44 days in office marked the shortest term ever in British history and was an anticipated outcome after the market’s negative response to her ill-timed tax cuts and policy missteps. Tax cuts meant to stimulate growth and ease the burden of rising energy costs were reversed as investors and politicians balked at the idea of unfunded public spending. The meltdown in government bonds (Gilts) required the intervention of the Bank of England and a temporary reversal of monetary policy to purchase assets and stabilize the markets.
The policies implemented came at a time of record high inflation, rising interest rates and falling real wages. As a result, the successor to Truss will have a difficult challenge as the U.K. fights a stagflationary environment with slowing growth and rising inflation.
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