October In Review: Five-Month Share Rally Ends

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Declines across utilities, staples and materials outweighed gains for financials, healthcare and communication services in October, resulting in a -1.3% loss for the ASX200.

-ASX200 lost -1.3% (total return) in October
-Financials & Healthcare rally, Utilities & Staples weigh
-Growth outperforms Value as the mining rally fades
-The Australian dollar falls by around -5% 

By Mark Woodruff

Following the boost for Australian shares in September provided by surprise stimulus announcements in China, the Resources sector retraced in October while weak earnings guidance by Woolworths Group ((WOW)) weighed on consumer Staples.

Following five consecutive months of gains, the ASX200 lost -1.3% (including dividends) in October as the rotation out of Banks from September partly reversed with the sector recovering from month lows and ultimately gaining 3.8% for the month.

However, the rise in banking shares masked material falls elsewhere. Of 23 Industry Groups, 17 underperformed and 10 fell by more than -4%.

In a volatile month for currencies, the US dollar Index (DXY), a measure of the value of the US dollar relative to a basket of foreign currencies, rose by 3.1% to 103.9 by the end of the month.

The stronger DXY impacted on the Australian dollar which moved -4.8% lower in October to US$0.6583.

Regarding offshore equities, the MSCI All country World Index fell by -1.1%, and the S&P500 and the Information Technology sector in the US lost -0.91% and -0.97%, respectively.

The MSCI China Index lost -5.6% while Japan gained 2.3%.

Back in Australia, Financials, Healthcare and Communication Services were the best performing sectors, gaining 3.25%, 0.89% and 0.75%, respectively, while Utilities, Staples and Materials fared the worst by racking up respective losses of -7.23%, -6.99% and -5.21%.

The US 10-year yield rose by 50bps in October to 4.28%, due largely to a 32bps rise in real yields as markets priced fewer interest rate cuts by the Federal Reserve, explains Macquarie.

According to the CME Group FedWatch Tool, there is a 94% chance the Fed will cut by another -25bps on November 7, but only a 5% chance the Reserve Bank of Australia will start cutting in November.

The Australian 10-year year yield rose by 53bps to 4.50% in October.

The first -25bps cut in Australia is now not fully priced until May next year, observes Macquarie, though it is increasingly hard to justify not cutting because of inflation, suggests the broker, given core CPI inflation for September came in just 20bps above the high end of the RBA’s target band.

The gold price has risen by 25% so far in 2024.

Given the rise in US yields, a 5% rise in the gold price and the subsequent 10.3% gain for the Gold sector in October surprised Macquarie. One potential explanation, suggests the broker, is the ongoing uptrend driven by geopolitical tensions and central bank demand.

Not all gold stocks prospered, with Newmont Corp ((NEM)) losing nearly -9% on a weaker 2025 production outlook.

Back in Australia, all size-biased indices closed lower in October. Mid caps were the worst performing, while the Small Ordinaries Index was the month’s best.

Adding to September gains, the Small Ordinaries outperformed its large and mid cap counterparts by 2.5% and 3.2%, respectively, driven by Materials and Financials, while the Discretionary and Real Estate sectors detracted from the overall performance.

Growth outperformed Value by 2.4 percentage points, recovering nearly half of the underperformance in the prior month (-3.9 percentage points) when the rotation to mining stocks away from banks occurred.

At the individual stock level, CommBank ((CBA)), National Australia Bank ((NAB)), and ANZ Bank ((ANZ)) contributed 50bps, 18bps and 8bps, respectively, along with the respective 8bps contribution each from Aristocrat Leisure ((ALL)) and Northern Star Resources ((NST)).

Banks are still one of the rare parts of the Australian market seeing consensus earnings upgrades, highlights Macquarie, as RBA rate cut expectations are pushed back and bad debts remain low.

On the flipside, BHP Group ((BHP)), Woolworths Group ((WOW)), and Rio Tinto ((RIO)) detracted from overall performance by -68bps, -17bps, and -15bps, respectively, as well as -15bps each from James Hardie Industries ((JHX)) and Wesfarmers ((WES)).

The CRB Commodity Index fell by -1.8% to 279.90 in October.

Gold moved 4.2% higher month-on-month to US$2,745.8/oz, while Brent crude oil closed 1.9% higher at US$73.2/bbl and iron ore fell by -7.3% to US$101.5/t.

Hard coking coal had a bad month, falling by -11.5% to US$207/t, while thermal coal was only down by -0.7%.

Macquarie’s proprietary measure of equity sentiment, the FOMO Meter, fell to 0.92 in October from 1.31 in September as asset managers and individuals became less bullish, offsetting slightly more bullish sentiment from advisors.

This broker points out November is typically the strongest month for US equity returns (and second best for the ASX), but a Harris win in the US Presidential Election could disappoint markets hoping for a Trump win.

Over in New Zealand, the NZX50 Index gained 1.73% in October following gains made in August after an interest rate cut by the Reserve Bank of New Zealand.

ASX100 Best and Worst Performers of the month (in %)

ASX200 Best and Worst Performers of the month (in %)

ASX300 Best and Worst Performers of the month (in %)

ALL-TECH Best and Worst Performers of the month (in %)

All index data are ex dividends. Commodities are in USD.

Australia & NZ

The World

Metals & Minerals

Energy

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