October 2021 capital markets outlook and risk metrics

October 2021

Markets

  • Equity markets across the globe suffered negative returns in September with US Equity lagging all other major regions. Across regions, styles, and market capitalizations, equity markets generally produced returns in the -1% to -6% range. Year-to-date returns remain strong for the majority of regions with the exception of emerging markets (and China specifically).
  • Value outperformed growth across equity markets in the US, Non-US Developed, and Emerging Markets. Similarly, smaller capitalization outperformed larger capitalization equity markets.
  • In the fixed income markets, most bond indices posted negative returns and only Short-Duration TIPS and Leveraged Loans posting positive returns.
  • Commodities returned 5% in the month while the S&P Global Natural Resources and S&P Global LargeMid Cap Commodities & Resource indices returned -1.0% and 1.0%, respectively.
  • Global Infrastructure struggled in the month with the S&P Global Infrastructure and DJ Brookfield Global Infrastructure indices returning -1.3% and -3.1%, respectively.
  • US and Global Public REIT indices posted negative monthly returns in excess of -5.0%.

Overview

  • In the US, rising inflation and slowing growth expectations weighed on market sentiment. Supply chain challenges (e.g., microchips, shipping, etc.) continue to plague several industries throughout the globe.
  • The potential for a US default re-emerged in the expiration of the debt ceiling in August and the US Treasury indicating that it will run out of cash by mid-October.
  • Uncertainty regarding future growth in China weighed on emerging markets assets as markets responded to recent governmental interventions and the mega default of ~$400 billion in debt of the Chinese property developer Evergrande.
  • Global uncertainty regarding COVID vaccine efficacy, and the rollout of booster-shot programs could weigh on reopening of the global economy. Relatedly, there has been a divergence in the continued response to the pandemic as certain nations (e.g., Norway) have recently completely re-opened whereas others (e.g., Australia) continue to implement severe lockdowns.