U.S. equities continued their decline in October, with the S&P 500 and Nasdaq Composite indices entering correction territory, down -2.1% and -2.8% during the month, respectively. Heightened geopolitical risks and the persistent increase in Treasury yields pushed up market volatility and detracted from markets. Positive economic surprises, like robust retail sales (+0.7% vs. +0.3% expected) and strong preliminary Q3 GDP (4.9%), weighed on markets as economic strength encouraged investors to adjust their expectations to reflect the potential for a prolonged period of higher interest rates.
Geopolitical tensions spurred a flight to safety, boosting the U.S. Dollar and weighing on small-cap stocks in October. Cyclical sectors underperformed the S&P 500, with Energy declining the most. The MSCI ACWI ex US index fell by -4.1%, while the MSCI Emerging Markets index declined by -3.9%. Positive Chinese economic data and the announcement of fiscal stimulus offered limited market support due to continued worries about the real estate sector and new U.S. limits on AI chip exports to China.