Finally! Some good news to report which we have not been able to do many times this year. For the month of October, the S&P 500 index was up 7.99%. For the year, the index is now down -18.76%.
Interestingly even though we don’t mention the DOW Jones Industrial Average that often it had its best month since 1976 up a stunning 13.95%. We bring this up as a point of interest as we do not believe the Dow 30 is a great representation of the overall market. Nevertheless, it was a stellar month and the best in a long long time. Also of note was the continued decline in the bond market as the Barclays Aggregate Bond Index declined another -1.49% bringing the year-to-date decline to -16.81%. As we have mentioned several times this year this has been the Achilles’ heel of conservative and moderate portfolios.
Sticking with the main theme of the year, that being inflation and the Federal Reserve, the Consumer Price Index (see chart) had a slight retreat from previous months levels. This is good but this is still not dropping as quick as the Federal Reserve would like it to. It appears as if more/higher interest rate increases are likely in both November and December and possibly even into the first quarter of next year. One possible reason for the market rally in October was a rumor that the fed was considering lower rate increases vs higher as the year closes out and that they may possibly be getting close to a pause (finally.) This is largely speculation at this point but there will be a point at which the Fed will pause and when we get this it will be welcome news. Inflation data moving forward will be the key factor as to what the Fed is likely to do as they would like the inflation rate back into the 2 percent range which is their target. They have a long way to go to get there.
There is a lot of talk about recession in 2023. Some will make the argument that we may already be in one. However, its highly unusual to have a recession with the employment numbers looking as good as they do (i.e. Very low unemployment.) If you are looking for something to watch over the coming months watch the unemployment rate. If it begins to move up, the odds of an official recession will increase. Also, it’s worth noting that the LEI (Leading Economic Index) peaked out in February and has fallen in 6 of the past 7 months. This has historically been a great indicator of recession as well. So, safe to say that we are on recession watch and will be for quite some time. One danger in the Fed doing all of their interest rate increases is that of over tightening and slowing the economy too much. As we have stated in past issues, we feel that the Fed has done enough on the interest rate front in terms of raising and should take a pause to see how things play out for a few months. This is unlikely to happen but it’s nice to have a wish list.
We will leave you with one final reminder, a public service announcement if you will. Buy low sell high! Many of our clients are sitting on cash waiting for the perfect time to invest. There is no perfect time, hence dollar cost averaging (taking a portion of that cash to buy stock related investments on a systematic basis) is the perfect solution. Think about where we were 30 days ago? A lot lower and who saw as big an up month as we just had coming? The point is you never know when bear markets will end and timing to perfection is extremely difficult if not impossible.
If you have any questions or would like to discuss your personal situation, please feel free to reach out.
*The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Results can be found at slickcharts.com.
*Treasury yields can be found at finance.yahoo.com.
*Charts produced at yCharts.com