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Song of the month: "The End of the Innocence" by Don Henley
October was marked by heightened market volatility as investors navigated high bond yields, geopolitical tensions, and uncertainty surrounding the sustainability of the AI-driven equity rally. Global equities delivered mixed performance. Defensive sectors drove strong gains in Switzerland, while most major markets came under pressure. Fixed income markets weakened as expectations for higher-for-longer interest rates kept government bond yields high across developed economies. Meanwhile, oil prices surged on Middle East supply concerns, the Swiss franc strengthened on safe-haven demand, and Bitcoin declined as risk appetite deteriorated.
Resilient corporate earnings provided some support, but tighter financial conditions remained a key headwind for financial markets. The return of interest rates is forcing Europe to face a harsh reality: debt is never free forever. As Don Henley so aptly sang in 1989, it’s “The End of the Innocence.”
Enjoy the read.
Table of Contents
Key takeaways
10-year U.S. interest rates around 4.94%
10-year France interest rates around 4.97%
SMI up 7.1%
Oil price at USD 118 (Brent)
EUR/CHF down 2.8%
What happened with equities
Global equity markets declined in October, reflecting a broad rotation away from AI-related stocks and concerns over high bond yields. The S&P 500 lost 0.9% during the month. The CAC 40 edged up 0.1%, despite fiscal concerns, social unrest in France, and rising government bond yields. In Switzerland, the SMI advanced 7.1%, significantly outperforming most major equity indices. Defensive healthcare and consumer staples stocks drove this performance, particularly Novartis, Roche, and Nestlé, as investors sought shelter from high bond yields and uncertainty surrounding the AI trade.
What happened with bonds
Bond markets weakened in October as government bond yields stayed high across major developed markets, reflecting expectations that interest rates would remain elevated for longer. In the United States, the 10-year rate ended the month at 4.94% as investors reassessed the outlook for interest rates. European sovereign bonds came under pressure from persistent inflation concerns and tighter financial conditions. In France, fiscal concerns and social unrest pushed the 10-year government bond yield to 4.97%. This widened the spread versus the German Bund (3.38%) and highlighted investor concerns over the country's budget trajectory. While corporate bond fundamentals remained broadly healthy, investors increasingly favoured higher-quality issuers amid heightened market uncertainty.
What happened with commodities, currencies, and digital assets
Oil prices rose sharply (+13.6%) in October as escalating geopolitical tensions in the Middle East heightened concerns over global supply. Brent crude reached USD 118 per barrel, driven by fears of disruptions to key export routes and energy infrastructure. Declining global inventories further underscored tightening market conditions. Persistent supply uncertainty kept upward pressure on prices.
EUR/CHF declined by 2.8% as investors sought the safety of the Swiss franc amid heightened geopolitical uncertainty and increased risk aversion.
Bitcoin fell more than 7% during the month as weaker risk sentiment and profit-taking weighed on investor appetite. Despite expectations for a seasonal "Uptober" rally, the cryptocurrency struggled to gain momentum amid broader market uncertainty and tighter financial conditions.
Itshak Banon
Head of Investment Strategy
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