September Market Recap
October 3, 2022
Investors desperate for good news received very little in September.
The latest inflation readings fell less than expected, the Federal Reserve doubled-down on its rate-hiking, and equities responded by sinking to calendar-year lows. When markets closed on Friday afternoon, the S&P 500 concluded its worst month since March 2020. The S&P and NASDAQ finished lower for the third consecutive quarter, something that hasn’t happened since 2009.
In terms of year-to-date performance, only two years (1974 and 2002) in the last 75 were worse than the S&P 500’s 24.8% loss through the first nine months of 2022. Those looking for a silver lining will like knowing that the S&P gained 8% over the final three months in both years.
All 11 sectors in the S&P 500 decreased last month. Real Estate (-13.6%), Communication Services (-12.2%), and Technology (-12.1%) inflicted the most pain. Health Care (-2.7%) weathered the storm best.
|Index||September 2022||YTD 2022|
The Fed has put itself into a difficult position with only two possible paths out: Either it continues raising interest rates aggressively to bring down inflation and harms the economy by doing so. Or it maintains more friendly monetary policy to support financial markets but allows inflation to remain elevated for the foreseeable future. Both routes will be bumpy. Both will bring criticism. But Fed Chair Jerome Powell, who announced another 0.75% increase to the Fed Funds Rate on September 21, has made it clear he believes killing inflation is worth any collateral damage.
The latest inflation gauges seemed to convince markets this battle may take longer than expected to win. The Consumer Price Index (CPI) released on September 13 showed only a small decrease in annual inflation (8.3% compared to 8.5% a month earlier). Excluding food and gas prices, “core inflation” rose month-over-month. The S&P 500 reacted with its largest daily decline (-4.3%) since June 2020. The Dow Jones Industrial Average lost nearly 1,300 points.
Another closely watched metric, Personal Consumption Expenditures (PCE), showed 6.2% annual inflation, down only slightly from 6.4% a month earlier. Released on September 30, the PCE data was followed by another wave of selling that sent the S&P 500 to its lowest close of the year.
There are, however, numerous indicators that suggest “peak inflation” is in our rear-view mirror. Shipping costs are down 60% since January. Oil plunged to an 8-month low in September, with West Texas Intermediate Crude trading below $80 per barrel. Home sales and new construction have slowed significantly. Lumber prices are 64% less expensive than where they began the year.
The housing market is another part of the economy that has undergone major changes in an especially short period of time. The average interest rate on a 30-year home mortgage hovered around 7% at the end of September. It’s been 20 years (January 2002) since borrowing costs were this high for homebuyers.
Bond yields rocketed higher in September. 10-year US Treasury Bonds yielded 3.8% at month’s end and got as high as 3.99% on September 27. The last time yields touched 4% was June 2009, during the Great Recession. As yields have climbed, the prices of existing bonds have cratered. Those invested in traditional bond funds will be staring at year-to-date losses around 15% on their third-quarter statements.
International equities sold off at a similar pace to US stocks. Non-US Developed equities lost 9.2% in September. Emerging Markets fell 11.5%. Both categories continue to face the headwind of an exceptionally strong US dollar, which strengthened a further 3.2% last month versus a basket of global currencies.
US companies will begin reporting third-quarter earnings in the weeks ahead, and with expectations lowered given persistent inflation and general economic pessimism, there is hope even moderately good earnings may create some positive momentum. As of September 30, consensus estimates called for only 2.9% annual earnings growth from S&P 500 companies.
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Marks Group Wealth Management performs in-house analysis on companies. Statistical information on mentioned companies is obtained from company reports, news releases and SEC filings. The information set forth herein has been derived from sources believed to be reliable, but is not guaranteed as to accuracy and does not purport to be a complete analysis of the securities, companies or industries involved. Opinions expressed herein are subject to change without notice. Additional information is available upon request.
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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.