October was one of the most challenging months for U.S. stocks this year and the major indices all posted sizeable losses, with the S&P 500 Shariah down as much as -10% during the month, recovering slightly and ending October down -7.86% (the index is also up around 1% on the first few days of November).
What caused stocks to sell-off? There are a few factors that may have contributed to the sharp drop in markets including: pockets of earnings disappointments, fears that earnings growth has peaked, and the continued trade war between the U.S. and China.
There is a potential meeting between President Trump and Chinese President Xi being organized during this month’s G20 summit. If the two sides are unable to reach a deal, it increases the risk of an additional wave of tariffs on the remaining $265 billion of Chinese imports by the U.S. On the other hand, if a deal is reached, we could see equity markets rip higher.
Gold benefited from market uncertainty and saw positive returns in the month (just over +2%), as investors pile in as a safe haven, showing it still plays a valuable diversifying role in portfolios.
U.S. Treasury yields have been range bound during the month, but continued to rise gradually. The Federal Reserve is expected to hike rates again in December, which has continued to put pressure on fixed income markets and emerging markets broadly.
Headlines around the Jamal Khashoggi case caused some slight weakness in the Saudi sukuk market while the trade war between the U.S. and China put pressure on Malaysian and Indonesian debt markets, both of which are big exporters to China and the U.S., so we saw sukuk markets slightly down during the month.
October 2018 Model Portfolio Returns
Source: Reuters as of October 31, 2018. Please note that performance shown are for Wahed model portfolios. Actual client performance will depend on timing of funding and intra-quarter drift from targets. Past performance is not indicative of future results