October 2014 Commentary

Boy I'm glad October 2014 is over as we had a disappointing month. The S&P 500 fell 7.3% then gained 8.4% in a span of 6 weeks despite, in my opinion, little change in market fundamentals. True, the last week of October saw the FOMC be more hawkish than expected when they announced the expiration of 3 rounds, 6 years and some US$3.7T in asset purchases, now an eightfold increase to its asset holdings since November 2008. Of course even more surprisingly, two days later, Japan announced its 'shock and awe' stimulus campaign, but by that time most of the move in markets was over. To me, you would have had to have blinders on not to realize that global growth was slowing down, let alone that recession risk remained in Europe. Italy, the world's 7th largest economy, had already confirmed its triple-dip recession (a recession in which three periods of zero or negative economic growth are interspersed with short periods of economic recovery) while the continent's juggernaut Germany had been experiencing a slowdown in its industrial production since the summer. In my view, three developments triggered the volatility in the first half of October...