October Market Recap
November 1, 2022
No need to point out silver linings this month. The financial headlines offer enough to feel good about.
The S&P 500 increased 8% in October, which sounds impressive until reading that the Dow Jones Industrial Average gained nearly 14%, its largest monthly gain since January 1976. The tech-heavy NASDAQ’s 3.9% return (meager, by comparison) is reflective of a shift among investors to favor more defensive stocks rather than those with the highest long-term growth profiles.
Energy (+23.7%) remained the market’s best-performing sector. Industrials (+12.4%) and Financials (+10.6%) also offered outsized returns last month. Communication Services (-1.8%) and Consumer Discretionary (-1.6%) were the only sectors to finish negative.
|Index||October 2022||YTD 2022|
Whether the current rally proves more durable than the one we experienced this summer will be determined by some familiar factors: Inflation data and Fed monetary policy. The rate hike announced by Fed Chair Jerome Powell on Wednesday November 2 (expected to be another 0.75%) will not be as important as Powell’s comments in the hours afterward. There’s a realistic chance the Fed could pause interest rate hikes in early 2023 and any hints about future policy decisions will prove significant.
The most recent inflation readings remain stubbornly elevated. The Consumer Price Index (CPI) released on October 13 showed 8.2% year-over-year inflation. “Core inflation” (which strips out food and energy prices) increased 0.6% compared to a month earlier. The Personal Consumption Expenditures price index (PCE) rose 5.1% (up from 4.9% a month earlier). It’s unlikely the Fed will pause rates without more significant declines in these inflation measurements.
Despite the obvious challenges presented by inflation, US GDP grew 2.6% (annualized) in the third quarter, slightly better than consensus expectations. This comes after two consecutive quarters of negative economic growth.
Midway through third-quarter corporate earnings season, S&P 500 companies have reported cumulative earnings growth of roughly 2% from a year earlier. That’s in line with overall expectations.
Bond yields ascended further in October. The 10-year US Treasury yielded 4.08% at month’s end (compared to 3.8% a month ago). An 8-year ladder of individual corporate bonds like those in our Marks Group Fixed Income portfolios yields more than 5% per year. Bond yields had increased for 12 consecutive weeks until that streak was snapped in late October.
The housing market continues to cool rapidly. US home sales fell for the eighth month in a row and 30-year fixed mortgage rates climbed above 7%, more than double what they were a year ago (3.1%).
The biggest international news last month was the resignation of UK Prime Minister Liz Truss, who stepped down only 45 days after taking office. Truss’s plans to kickstart the British economy through tax cuts and higher government spending were met with ugly financial consequences, including the plummeting of the country’s currency. She has been replaced with Rishi Sunak, a former Goldman Sachs analyst who served as Britain’s finance minister under former PM Boris Johnson.
Non-US Developed equities gained 5.9% last month. Emerging Market equities lost 2%.
If you’re wondering whether next week’s midterm elections could impact stock prices, the truth is who wins and loses is much less significant than most people suggest. That said, November through April is, historically, the best six-month period of the year for equities. The S&P 500 has climbed higher in the six months following every midterm election since 1950, with an average gain of 15%.
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Stock investing involves market risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. International and emerging market investing involves special risks such as currency fluctuation and political instability. These risks are often heightened for investments in emerging markets. No strategy assures success or protects against loss. Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.
Past performance is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.
MSCI EAFE Index consists of the following 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.
The Barclays Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment-grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.