November 1st, 2022
It’s been a while – I took a little hiatus. On 10/21/22 my wife gave birth to our beautiful son, Rome August Sauer. We are absolutely thrilled.
Given the shifts in my life, I’m going to be transitioning away from ‘weekly’ market & economic updates and focusing on monthly updates. I’ll also be posting the back log of blog posts that I’ve created over the last several months – rather than just inform you on market and economic movement and policy, I aim to also educate and inspire you with this next phase of the AllOne blogging journey.
As always, I’d love to hear from you. Please reach out with any questions or feedback – I’m always open for blog suggests as well.
Below is your AllOne Monthly Market & Economic Update by the numbers.
Interested in learning more? Schedule a call with me HERE.
Warmly,
Mark S Sauer
Market Update
Global Equities, Fixed Income & Commodities
Global Equities: A tumultuous month filled with volatility. However, earnings and a strong technical support level gave investors the confidence to buy the market lows and drive prices back into a healthier range. The Nasdaq struggled with big tech earnings, but still salvaged a 2.07% gain for the month. The S&P 500 gained 6.19% in monthly trading, and the Dow Jones Industrial Average outperformed with a 12.4% gain. International stocks were mixed with Developed Markets up 5.96% and Emerging Markets down -2.93%, the latter falling dramatically on Monday (10/24) as Chinese President Xi Jinping assumed a third term and immediately replaced opposition party members with loyalists.
Economic Update
Beige Book, PCE Inflation, Q3 Earnings & Q3 GDP
Beige Book: The Beige Book, a compilation of data from the 12 regional Federal Reserve districts, was released mid-month, detailing the continued impact of inflation on businesses and consumers. Among the report’s findings, some anecdotal evidence suggests consumers are reaching their limit absorbing price hikes being passed on by businesses, although overall spending remains robust. Rising wages continue to exert upward pressure on inflation, as many regions reported heavy competition in hiring and retaining talent. Among recession warning signs was slowing loan growth on weakening demand, suggesting some businesses have become wary of capital spending due to economic uncertainty.
Charts of the Month
S&P 500
Our Chart first Chart of the Month shows the S&P 500 on a weekly time frame – which covers the 2020 Covid-19 collapse and subsequent recovery, followed by 2022’s bear market selloff. As we’re now in the trenches of the fourth quarter, earlier this month we reached a critical moment as the market attempted to contain losses and bounce off a double-bottom from June’s market lows of 3,600 (purple line). This range coincided with the 200-week moving average (red line) both of which ended up providing tremendous support as the S&P bounced and climbed its way back to the 3900 range (green line). Holding the 3900 range could prove to help the market end the year in a healthy place. However, the interest rate environment stifling institutional borrowing, as well as, consumer spending projected to come in low during the holiday season – due to higher spending on household needs like groceries and gasoline – may result in poor performance for Q4. Time will tell how ’23 shakes out.
Nasdaq
Our next chart shows the Nasdaq also on a weekly time frame. Unlike the S&P the Nasdaq has not seen the same strength in holding the double bottom and bouncing off the 200-week (red line). Though this level is holding it certainly suggests things are still a little concerning prior to what is thought to be a nearing recession. Nasdaq companies poor performance in Q3 earnings has certainly slumped its growth spirt. Still holding below the 11,900 level with incoming rate hike could prove to be a challenging end of the year for the Nadaq.
US High Yield Bonds
Our next chart is the year-to-date performance of the iShares iBoxx US High Yield Bond ETF, ticker HYG shown against its 50-day moving average (blue line). HYG has struggled along with equity markets, but after several positive days has now crossed the 50-day moving average. While this is by no means a confirmed breakout to new highs, the chart looks constructive and high yield is often a leading indicator for equity markets and is reflective of diminished recession risk after this week’s positive GDP report.
Fed Fund Rate Projections
Our final chart shows the historical Fed Funds Rate in black, the implied forward path of rates in pink (based on Fed Funds Futures), and the Fed’s own dot plot forecast in yellow. The Fed dot plot has, in prior instances, been a somewhat unreliable indicator of rates while the market typically has a better sense of where rates are going. In this instance, the market has been slower to accept the reality that the Fed is going to push rates up to 5% but is now roughly in line with the dot plot path. With the rate path now “priced in”, the market needs to see easing inflation data or else we run the risk that the Fed elects to take rates even higher than the projected 5% terminus.
