Blue Chip Portfolio USD Monthly Commentary – Nov 1st, 2024
Summary
October was a challenging month for markets, with both bonds and equities experiencing losses. It was the weakest month for global bonds since September 2022, driven by stronger-than-expected economic data and a less favourable outlook for rate cuts, alongside rising fiscal and geopolitical risks.
Despite a generally optimistic economic outlook, strong data, e.g., a high ISM services index and robust U.S. jobs report, led investors to reduce expectations for rapid interest rate cuts by the Fed. This sentiment was further reinforced by higher-than-expected inflation, with U.S. core CPI reaching a 6-month high in September. Consequently, future rate expectations rose, putting pressure on U.S. Treasuries and sovereign bonds.
U.S. Treasuries had their worst monthly performance since September 2022, falling by 2.5%. Fiscal risks also drew attention, particularly with the IMF projecting global public debt to exceed $100 trillion in 2024 and a potential Republican sweep in the U.S. midterm elections. In the UK, gilts faced declines (-2.7%) after the government announced increased borrowing. Eurozone sovereign bonds, while also negative (-1.0%), saw less severe declines, helped by the ECB’s additional 25 basis point rate cut.
Geopolitical instability, especially in the Middle East, caused fluctuations in oil prices. An initial spike in early October followed an Iranian missile strike, but oil prices settled back as the military response was limited, ultimately closing up 1.9% for the month.
Safe havens, such as gold, performed well, with gold prices rising by 4.2% to close at an all-time high. The dollar also strengthened, posting its strongest monthly gain since April 2022, due to reduced expectations of rate cuts and increased risk aversion.
The portfolio’s October performance produced a small loss of 1.2%, whereas the S&P 500 Total Return Index fell 0.9% during the same period.
Top Gainers in October
• NVIDIA Corporation +9.3%: Nvidia’s ongoing dominance in the AI chip market, especially as demand for GPUs in AI applications continued to surge, which coincided with the company facing some regulatory scrutiny over potential export restrictions to certain markets, which added to the uncertainty. NVIDIA’s new product launches in high-performance computing also garnered significant attention from investors.
• T-Mobile US, Inc. +8.1%: T-Mobile’s competitive pricing strategies and subscriber growth appeared to win over investors. The company continued to expand its 5G network, which also strengthened its market position, however, competition with other carriers, particularly in rural and underserved areas, was an area of concern.
• Netflix, Inc. +6.6%: Netflix’s strong international subscriber growth and the success of several new content releases was noted by many, while the company continued to navigate a competitive streaming landscape, with increasing pressure from other platforms. Netflix’s efforts focused on diversify its revenue streams, including experimenting with ad-supported tiers.
• Alphabet Inc. +3.3%: Alphabet’s advancements in AI, especially with updates to Google’s search engine that incorporated more generative AI capabilities caught the headlines, as did the ongoing antitrust trials which added to the headwinds, as regulators scrutinized Google’s practices in search and advertising. Despite this, Alphabet’s AI initiatives remained a central point of interest for investors.
Top Losers in October
• Colgate-Palmolive Company -9.3%: Colgate-Palmolive’s challenges with increasing raw material costs impacted profit margins, which they try to counter as the company also highlighted its initiatives in sustainable packaging, aiming to attract environmentally conscious consumers. The oral care segment continued to perform steadily, but the company faced growing competition in personal and home care.
• Advanced Micro Devices, Inc. (AMD) -12.2%: AMD’s strong demand in the AI and data centre markets contributed to positive sales momentum and new product releases for high-performance computing were well received. However, AMD faced increased competition in the semiconductor industry, particularly from Nvidia, which along with regulatory concerns around chip exports to certain markets pushed the stock price down.
• NIKE, Inc. -12.7%: NIKE’s direct-to-consumer strategy was paying off, with online sales seeing growth. This was not enough though as higher logistics and manufacturing costs pressured margins, and inventory management remained a key focus for the company. Performance in North America was mixed, but international growth provided a positive offset.