Market Commentary - October 2022
October 13, 2022
For your convenience, below are a few summary highlights from our Investment Strategy Group’s Quarterly Market Commentary for October 2022:
- Capital markets struggled through another volatile quarter as investors worried about Fed tightening, inflation, recession, and geopolitical conflict. A mid-quarter rally raised hopes, only to give way to renewed turmoil when markets careened in the wake of worse-than-expected inflation data and the Federal Reserve’s third consecutive 0.75% rate hike in September.
- After two straight quarters of negative real U.S. Gross Domestic Product (GDP) growth to start the year, economists expect modest positive growth in the back half of 2022. However, certain segments of the economy (i.e., housing) are slowing considerably with surging interest rates, while business and consumer confidence remains quite subdued. As a result, the broader economy remains at risk of formally tipping into recession if the combination of persistent inflation and higher rates further crimps activity.
- Inflation continues to be a major focus, as the Consumer Price Index (CPI) remains near 40-year highs despite some easing in gas prices. The latest reading showed CPI at 8.3% year-over-year. To bring prices under control, the Fed has raised rates aggressively, with more to come. However, many favor a Fed pause to assess the impact of actions taken to date, rather than risk overtightening.
- With an unfavorable macro backdrop, all but one S&P 500 sector has declined YTD, with Energy the lone winner. Rising interest rates have weighed heavily on firms with high valuations and uncertain future cash flows. Stable companies with healthy current cash flows have held up better. International equities also posted declines, as they deal with similar issues, along with strong currency headwinds.