October 2024

Updated: Apr 11

Newsletter October 2024

October 2024:

Get caught up on what we (and the world) were up to in this eventful past month! The prominent news coming out of October involve interest rates (what’s new?), the US elections, and continued conflicts in the Middle East. We’ll also take a look at me recent deals, specifically the acquisition of Splunk, the partnership between Citigroup and Apollo, and an IPO out of Japan! On the markets side, we’ll touch on the so-called ‘October effect’, and take a deeper look at equities, gold, and bonds. You can also look forward to some accounting technicals, and learning a bit more about Anna Tavano and the charity Women for Women International. Stay tuned to the end for a little game of 2 truths and a lie!

October Recap

Recruiting: after a tough round of interviews, we have welcomed 17 women into the association, 10 bachelor students and 7 master students. There were 135 applicants, which means we had a 12.6% acceptance rate. New and existing members gathered for a welcome aperitivo right before the exam period, so we could all get to know each other. We are looking forward to more social events this year. In addition, we want everyone to reach their full potential, so every junior member who wants a bit more support is now paired with a mentor within the association.

Workshop on Options and Greeks: we did a workshop on options and greeks, looking at call and put options, methods to price options, and the significance of and difference between greeks (delta, gamma, theta, vega, and rho). We also got to get some insights into what an internship in markets looks like!

Workshop on the US elections: before the US election, we had a workshop where we discussed the impact this will have (and has had in the past) on society in general, and on the market. We compared the candidates´ programs within the sections taxes and economy, trade, infrastructure, climate change, healthcare, and covid-19. Then we had a look at what the markets expect. This included the dollar to jump as much as 3% against EUR if trump wins, and the yield curve to steepen in a democrat victory scenario. Experts also saw global tensions easing if the democrats won. It will be exciting to see if the predictions hold with the new president.

Don’t miss out on our social media where we post our weekly tips, market news and market quizzes as well as stories of women that keep inspiring us!

News Recap

Fed Lowers Interest Rates: Did They Truly Achieve Their Aim?

With the US election fast approaching, the impact of the Fed’s decision to lower interest rates by 50 basis points could be monumental in providing a potential advantage for the Democrats due to the policy’s success. Indeed, the historically low unemployment rate remains unchanged at 4.1% and average hourly earnings are up 4% over the past 12 months, surpassing inflation which is now at the 2% target. However, the impact of the two hurricanes that hit the United States in the past month as well as the ongoing Boeing strike caused the Fed’s policy to not achieve its goal of creating over 110,000 jobs within the first month, as only 12,000 were added.

Whilst this aspect of the expansionist monetary policy may not have been a success, the lowering of the interest rates did cause a surge in consumer confidence by 11%, followed by a sturdy growth in economic output by 2.8% in the last quarter. This growth in confidence can be argued to showcase Americans’ increased expectations for a growing economy, especially as election day approaches and the possibility of a new government.

Moreover, the impact of the Fed’s policy can also be viewed within financial markets, with the cutting of interest rates buoying equity markets, seeing the S&P 500 on track for its second consecutive year with gains exceeding 20%. In terms of the bond market, by mid-September, the 10-year Treasury yield dropped to 3.63%, but subsequently moved back above 4%, potentially as a result of the improving macroeconomic situation.

However, although growth and hiring has been felt in many areas, analysts have argued that the vast majority of job growth the policy has brought has not been evenly distributed throughout the US economy with the four main beneficiary sectors being: private education and health care; leisure and hospitality; construction; and government.

Overall, with the lowering of interest rates before election day, the Biden administration can be argued to have finally reached their goal of spurring blue-collar jobs, as lower borrowing costs could make it easier for companies to invest in capital intensive projects, potentially increasing hiring as a whole in the near future.

On the Run Up to Election Day...

As the months of campaigning, rallying and debating come to their close, election day has officially arrived. The US presidential election is a major political event that has many implications, especially financial. Whilst the future effects can be influenced by who wins the race, we can take a closer look at what has been happening in the markets in the run-up.

A number of assets have been significantly shifting, such as cryptocurrencies and stocks. Bitcoin has climbed, with Trump’s support, beyond $70,000. US stock markets were close to all-time highs but dropped at the start of the week as investors await results. The S&P 500 dropped 0.3% on Monday, as well as the Nasdaq Composite. Treasury yields have also fallen with the 10-year benchmark declining by 12 basis points. This was partnered with a weakening of the dollar, whilst the Mexican peso gained. Beforehand, investors betting on a Trump win helped push yields on 30-year Treasuries to their highest since July. These moves illustrate investors’ re-evaluation as polling data shows Harris in the lead.

The volatility of the current market is an indication of the close-call nature of this election and the announcement of the 47th president will lead to further changes in the financial environment.

Conflicts in the Middle East: Oil Price Fluctuations in October

At the beginning of the month, oil prices reached a level rarely seen, close to $80 a barrel. In fact, after Israel’s bombardment of Lebanon, fears of a further tit-for-tat war (wars where one’s actions are based on his enemy’s, leading to fast escalation) with Iran rose, along with threats over oil supplies. Prices then kept this increase for almost two weeks, following the announcement by Biden of a potential Israeli retaliatory action against Iranian oil refineries.

However, mid-October the prices started dropping again to about $70 a barrel for two main reasons. First, because of signs of a softening of tensions in the Middle East with Israel declaring that it would only hit military targets in Iran and not energy infrastructures. Second, China’s National Development and Reform Commission announcements. The NDRC is responsible for economic planning in the country and was expected to provide significant economic stimulus measures. However, the commitments made during the Beijing press conference were quite below the speculations level and gave place to concerns about the demand from the world’s second-largest economy, leading traders to exit their positions.

U.S. economic indicators also weighed on oil demand expectations. October's job growth lagged, impacted by hurricanes and labor strikes, strengthening the case for a Federal Reserve rate cut and dampening oil demand. Brent crude dropped by over 6% to around $71.42, with West Texas Intermediate (WTI) at $67.38. On the supply side, OPEC+ extended production cuts of 2.2 million barrels per day through year-end, aiming to balance supply against tepid demand. With an unofficial $75-$80 target for Brent, OPEC+ is committed to stabilizing the market. Adding support, the U.S. government announced plans to replenish its Strategic Petroleum Reserve, providing price stability amid broader bearish trends.

At the end of October, the international oil price benchmark settled around $72 a barrel and the US one around $68 a barrel. Analysts forecast WTI to stay between $65 and $75 per barrel in November, barring unexpected events. December's OPEC meeting will be crucial, with analysts expecting continued supply constraints, likely keeping Brent between $75 and $80 if demand remains subdued.

Oil accounts for about 3% of the world GDP and is one of the most important commodities. Its volatility is therefore important to be aware of because its price impacts on almost all goods and services and thus inflation and the economy as a whole.

Dealflows & IPOs

Cisco Systems Acquires Splunk

Cisco Systems, a global leader in networking and telecommunications with a market cap of approximately $218 billion, completed its $28 billion acquisition of Splunk. Cisco aims to strengthen its cybersecurity and analytics capabilities by leveraging Splunk’s real-time threat detection and monitoring. The acquirer paid $157 per share in cash, and the stock initially fell slightly after the announcement. However, it recovered quickly, which reflects investor confidence in its strategic shift. More broadly, the acquisition aligns with a recent trend of major tech firms expanding their cybersecurity portfolios amid rising cyber threats. For instance, Microsoft expanded its investment in AI-powered security tools earlier this year. Thus, Cisco’s acquisition increases its competitive position against Microsoft and Palo Alto Networks. In the future, it will likely drive innovation in integrated security technology in the industry. This acquisition strengthens Cisco’s ability to directly add advanced security features, such as real-time threat detection, to its networking products, helping businesses manage cybersecurity risks within their existing infrastructure.

Tokyo Metro's IPO – Japan's Biggest since 2018

On October 23rd, Japan witnessed its largest IPO since 2018, with Japanese subway operator Tokyo Metro shares soaring 45% after its debut. Tokyo Metro, which operates nine lines, 180 stations and transports over 6.5 million people daily, experienced a market capitalization increase from $4.6 billion to $6.7 billion, raising $2.3 billion in the process. The company's shares debuted at ¥1,200 each, on the higher end of the forecasted range, and closed at ¥1,739. This IPO marks Japan’s first state company privatization since 2016, with proceeds directed toward repaying government bonds that financed reconstruction efforts following the 2011 Fukushima disaster. This stellar IPO performance, which was 15% oversubscribed, reflects strong investor confidence in the company’s stable dividend outlook. The metro service has very little operational risk, and demand remains strong as the Tokyo population grows at around 1% yearly. The IPO offers a promising outlook for Asia’s IPO market, particularly in Japan, following a volatile period due to a change in prime minister and unexpected interest hike.

Citigroup Partners with Apollo for $25bn Deal

Citigroup announces a $25 billion partnership with Apollo Global Management to establish a private credit venture to lend to private equity groups and lower-rates US companies. While Citigroup leverages its network and expertise to identify loan opportunities, Apollo will provide the funding. This strategic alliance allows Citigroup to strengthen its position in the growing private credit industry, opening an opportunity to reclaim business previously lost to asset managers. The partnership also fosters Apollo’s growth in its credit division, which already makes up more than 70% of their assets. Traditionally focused on investment-grade bonds and loans that suit the needs of insurers, Apollo will now gain increased access to higher-yielding but riskier private credit markets through Citi, including loans to support private equity buyouts. Apollo plans to finance the deal through its direct lending funds, its insurance subsidiary Athene, and Abu Dhabi’s Mubadala sovereign wealth fund. This venture, led by Citi’s new corporate and investment banking head, Vis Raghavan, aligns with CEO Jane Fraser’s strategy to strengthen relationships with private equity firms. Rivals like Wells Fargo and Barclays have similar private credit ventures, with Wells Fargo working with Centerbridge on a $5 billion fund, and JPMorgan and Barclays actively expanding their lending capabilities in this competitive sector, illustrating the growing interest of banks in the private credit market.

Analysis of the Markets

The 'October Effect'

October has always been characterized by the so-called ‘October effect’, meaning that stock markets tend to experience significant volatility and potential declines. Although it is often considered more as a psychological phenomenon than one with relevant empirical backing, historical data on market events have reinforced this belief. Some examples of major financial crashes happened during this month could be the 1929 stock market crash, triggering the Great Depression, or the Black Monday in 1987, the largest one-day percentage decline in the stock market history.

This past month has indeed seen important events which changed rapidly global markets’ dynamics and investors’ behavior, with high levels of uncertainty brought mainly by the US elections and the geopolitical tensions in the Middle East.

Equities

In October 2024, equities experienced heightened volatility, with a mixed performance across major indices. Despite some rallies, the S&P 500, Nasdaq, and Dow all closed down for the month due to a mix of macroeconomic concerns, fluctuating oil prices, and earnings misses in key sectors. Initially, softening oil prices provided a boost to equities, as lower energy costs eased inflationary pressures and encouraged optimism that the Federal Reserve might consider rate cuts sooner. This pushed the Dow up by more than 250 points and provided brief support to the broader market. However, economic indicators pointing to slower U.S. growth tempered these gains, particularly as weak job numbers and hurricane-related disruptions clouded the outlook for growth.

Big Tech earnings also pressured the indices, as several large companies reported earnings that failed to meet investor expectations. This disappointment hit the Nasdaq especially hard, with concerns that high-interest rates might continue to dampen growth in these capital-intensive sectors. Inflationary concerns added to the equity struggles, as markets weighed the risk of persistent inflation against the chance of future Fed cuts. By month’s end, these factors led to an overall decline across major indices, signaling a cautious outlook moving into November. The trajectory of equities will likely hinge on further economic data, oil price movements, and whether anticipated rate cuts materialize.

Gold Rally This Month

Ahead of the U.S. election, gold has seen a substantial rally, driven by investor concerns over political instability, potential fiscal imbalances, and safe-haven demand. The election is expected to be a key market-moving event, and this scenario could elevate inflation fears and support higher bond yields due to anticipated government spending increases and import tariffs, which typically bolster safe-haven assets like gold.

Gold’s rally, up 5% in October and 34% for the year, contrasts with a tepid response to de-escalation in the Middle East, suggesting that gold's strength is more a hedge against U.S. political risk than geopolitical concerns. A 25-basis-point rate cut from the Federal Reserve is also expected shortly after the election, supporting further demand for gold through ETFs, as Western investors have recently turned net buyers after two years of outflows.

Meanwhile, the options market highlights growing interest in silver, seen as relatively undervalued compared to gold, with eight out of the ten most traded silver options being calls—particularly on $35 and $40 strikes, indicating a bullish sentiment. In gold options, while bullish sentiment prevails, there is emerging interest in puts at $2,650 and $2,600, signaling a hedge against a possible correction following gold's strong gains.

Gold could face technical support at $2,685 if a correction ensues, with a break below $2,600 potentially triggering a larger sell-off driven by hedge fund liquidations. Thus, while gold’s current momentum remains robust, a near-term correction post-election is possible depending on election results and subsequent market reactions.

Rates and Bond Market

The European Central Bank has implemented three consecutive interest rate cuts this year, each by 25 basis points. The most recent reduction occurred on October 17, 2024, bringing the deposit facility rate to 3.25%, the main refinancing operations rate to 3.40%, and the marginal lending facility rate to 3.65%. This decision was influenced by a decline in inflation, which fell below the ECB's 2% target in September, reaching 1.7%. However, in October, inflation rose to 2%, aligning with the ECB's target.

In contrast, the Federal Reserve maintained its federal funds rate at the range of 5.25% to 5.50% during its October meeting. The Fed recognized a cooling labor market and moderating inflation but chose to hold rates unchanged, reflecting a cautious approach in the middle of economic uncertainty. According to some polls, the Fed is expected to cut its key interest rate by 25 basis points on November 7, predicting also another quarter-percentage-point move in December.

The ECB's rate cut led to a decline in European government bond yields, reflecting investor expectations of continued monetary easing. Conversely, U.S. Treasury yields remained relatively stable, as the Fed's decision to hold rates steady was largely anticipated by the market. The divergence in monetary policies between the ECB and the Fed contributed to fluctuations in the euro-dollar exchange rate, influencing cross-border investment flows and bond market dynamics.

Technicals Explained:Cash-Based vs Accrual Accounting

When the accounting period is around the corner, a lot of the accountants face a big question: to accrue or to cash? But how do they differ? What are the key differences between cash and accrual type of accounting?

In short, it all comes down to time! Timing of revenue and expense recognition is crucial – while the cash method provides an immediate recognition, the accrual method focuses on anticipations, thus recognising the transactions right when they occur, regardless of cash being received or paid. While the cash method is appropriate for small firms and sole proprietors, big publicly traded companies must use the accrual method, which provides an accurate view of a firm’s financial health and smooths out their earnings over time.

Cash-based accounting is mostly used for its simplicity – it only tracks the firm’s cash flows. When applied, revenues are reported when cash is received and expenses recorded when cash is payed out. This method is preferred by small business and also used for personal finance, because it doesn’t require hiring extra staff and paying additional expenses. However, it is not allowed to use this method under the Generally Accepted Accounting Principles (GAAP). Why? The reason is simple – since it doesn’t account for accounts payable that might significantly decrease the available cash or even exceed current revenue stream, it might overestimate the financial health of a cash-rich firm. As a result, an investor can wrongly assume a firm’ s profitability.

Accrual accounting, contrarily, records income and costs as they are incurred rather than when money is transferred. By identifying economic events as they occur rather than depending just on cash flows, its main goal is to give a more realistic picture of a company's financial health. By ensuring that all financial obligations and entitlements are recorded in the period they occur, accrual accounting gives stakeholders a complete understanding of a business’s performance. It is especially valuable when there are significant receivables and payables, as it reflects the true financial position by including anticipated income and expenses. Because it conforms to GAAP and permits uniform, comparable financial reporting across periods, this approach is crucial for bigger enterprises and publicly listed corporations. Publicly traded corporations are required by regulations such as the International Financial Reporting regulations (IFRS) to use accrual accounting. This approach is also beneficial for tax and regulatory reporting, as it prevents businesses from over- or understating their financial position based solely on cash flows.

For better understanding, consider a subscription-based service like a streaming platform. These companies receive cash upfront from customers, who may pay for a full year’s subscription, but they recognize the revenue monthly as the service is provided. By accruing revenue over the subscription term, the company aligns revenue recognition with the actual delivery of services, providing a clearer and fairer view of monthly performance.

Worked Example:

A customer pays $120 upfront for a one-year subscription to a streaming service. The company recognizes revenue monthly over the 12-month period.

As you can see from the end of the month journal entry: we recognize one month's worth of revenue ($120/12 months = $10) as the service has been provided for that month. Unearned revenue decreases as the service is delivered.

Woman of the Month:Anna Tavano

This month’s woman of the month is Anna Tavano. Anna Tavano’s career is best captured in two words: unconventional and successful.

Raised in a family of entrepreneurs, she embodies the core values her parents instilled. Her father taught her honesty and responsibility, while her mother nurtured her compassionate, family-centered outlook. To that effect, she has saddled herself with the reputation for quality deal origination, advisory, and execution.

After getting her degree in economics and finance from the University of Rome “La Sapienza,” Tavano began her career in the finance sector in the 1990s at Citibank in London, where she developed strong analytical skills and learned the importance of discipline in executing complex tasks. She quickly rose through the ranks, becoming responsible for the Southern Europe region and learning to manage people, careers, and expectations.

In 2010, Tavano took a break from finance to work in the public sector, driven by a desire to give back to her community. She worked in the regions of Calabria and Lombardy until 2014, feeling that the public sector did not align with her skills and background. Thus, she returned to the finance industry, first at Citibank and then at HSBC, where she was appointed co-head of global banking for Continental Europe in 2021, and subsequently as Head of Wholesale Banking Italy in March 2022. Currently, she leads the global banking division within HSBC, leveraging her extensive experience to drive innovation and growth. Tavano is deeply committed to promoting women's careers and advocating for broader issues of diversity and inclusion within the financial and corporate sectors.

Her journey is a compelling example of how determination, hard work, and a commitment to excellence can lead to remarkable success in the highly competitive world of global banking.

“We women must learn to network, starting from ourselves. We must learn to ask without embarrassment: mutual support, that is the key. And before we can even ask, we have to give as soon as we can.”

Cause of the Month: Women for Women International

Women’s power is often viewed as a threat—silenced, ignored, and undervalued. We make up half the world and half its potential and are still excluded from the decisions that affect us. Conflict and war aggravate this unfairness. Extreme poverty, sexual assault, cruelty, and the loss of loved ones are all realities for a woman living through a violent conflict. In its wake, her neighborhood and house are left in ruins. And once the war is finished, everyone else's focus shifts, leaving women in a society that prioritizes them last without access to necessities like food and water.

Thirty years. Over half a million women. Since 1993, the non-profit Women for Women International has invested in the power of over 500,000 women who are forgotten, helping create a world in which all women determine the course of their lives and reach their full potential.

By joining a small group of women like herself, a woman who joins the program breaks the isolation of war and violence in Afghanistan, Bosnia and Herzegovina, the Democratic Republic of the Congo, Iraq, Kosovo, Nigeria, Rwanda, and South Sudan. She learns useful vocational skills like tailoring or chicken husbandry with her peers. She saves money while learning how to manage this as a company. In addition to learning about her reproductive health, she acquires important health knowledge that will help her, and her family eat well. In addition, she learns about her rights to vote, inherit property, and stop spousal abuse and violence.

She is able to connect with women like herself, uniting their strength to make their voices heard as they question the unspoken beliefs and norms that had held them back in the past. They now hold within them the power to transform our world, leading to a ripple effect that will traverse time and space. That is the power of women, for women.

Donate to Women for Women International here.

2 Truths & 1 Lie

And this month it's all about female representation in finance.Results will be posted to Instagram on Monday!

The region with the most progress for women in C-Suite positions in finance is Oceania
The percentage of banks with a woman CEO is greater than the percentage of Fortune 500 companies with a woman CEO
Women account for only 25% of finance faculty at top business schools

WiF Recommends

Ground News

is a news site that analyses political media biases and allows you to read news stories on the same topic written from left, right, and central-leaning sources to see these biases at play yourself.

Acquired

is a long-form podcast diving deep into some of the world's largest companies: their backstories and strategies. Episodes often feature founders/CEOs, including the CEO of NVIDIA, who came on after the show spent 7+ hours covering the company! A great listen for anyone, but would highly recommend for those interested in tech.

The Wall Street Skinny

is a podcast about all things finance, broken down into engaging one-hour episodes. Topics range from discussions on recent deals/market events to career insights. Their Instagram and newsletter are great as well!

What’s next?

As the first semester continues and our new members become part of the family, we look forward to what the rest of the year brings for WiF!