Happy November. As we move into the season of giving thanks, we can all feel thankful for a bit of good news about the markets. Stocks soared during October, with value stocks outperforming growth as earnings season kicked into high gear. They seem to have been buoyed by the idea that the Federal Reserve (Fed) may begin to scale back the pace of its tightening program in the months ahead. With a 75bps hike essentially guaranteed for their November meeting, the focus turns to the language used by Fed Chair Jerome Powell, stating a possible pause to evaluate the impacts of policy decisions to date.
There’s no doubt that the Fed is managing through a difficult time, and tightening appears to be the appropriate response. Fed Chair Powell certainly understands that few financial events are as devastating as high inflation over time – especially for those living on a fixed income. How the Fed has addressed 2022’s inflation has been significantly different than previous financial events. We’ve faced many challenging economic periods since 1984, and in each instance, the Fed’s reaction was to ease monetary supply or pause its money-tightening efforts. But in 2022, with inflation reaching new highs in the U.S. and showing few signs of slowing in other parts of the world, the Fed’s response has been to tighten by raising interest rates.
“Inflation” continues to be the word of the day -- everywhere you turn, there's another story about its impact. Among many industries hit hard by rising costs, manufacturers of candy products were feeling the pinch in October. Many news outlets reported that confectionary prices were 30% higher this Halloween. That wasn't sweet news, especially if we look closely at some of our favorite candies. According to the U.S. Bureau of Labor Statistics, prices for peanut butter were nearly 9 percent higher compared to 2021. And Cocoa, chocolate's main ingredient, also rose by more than 9 percent since December.1,2
However, while current inflationary pressures are certainly a cause for concern, some seasonal signs of hope are on the horizon. After two straight quarters of negative economic growth, the initial estimate of the third quarter’s GDP came in at a solid 2.6%, exceeding economists’ 2.3% estimate.3 The surprising economic performance was largely attributable to an increase in exports, which narrowed the trade deficit, a development that may not repeat going forward.4
Particularly encouraging was the personal consumption expenditure price index, a report used by the Fed to track inflation. It increased by 4.2%, well below the 7.3% jump from a quarter ago.5
We remain optimistic that the Fed’s strategy to tame inflation will positively impact future market conditions. In the meantime, if you have questions, please let me know. We’re always happy to hear from you.
1. Washingtontimes.com, October 5, 2022
Markets made a huge comeback in October and notched their first monthly gains since July. The Dow Jones Industrial index guided those gains, soaring 14.07% for the month. The 30-stock index finished its best month since 1976, as investors bet on more traditional companies (such as banks) to lead the next bull market. October’s gains have come despite a mixed third-quarter earnings season, which has shown slowing growth and major disappointments from large tech companies such as Meta Platforms and Amazon.
In US Sector performance, value and small caps rose sharply, while mega-caps lagged. All 11 sectors finished the month higher, with Energy stocks by far the best performer, closing up nearly 25.0%. Energy shares have been gaining due to the rise in oil prices. In fact, the international benchmark for oil prices, Brent crude, jumped 7.8% last month. Industrials and Financials gained double digits to start the fourth quarter, finishing the month higher by 13.9% and 12.0%, respectively. Consumer Discretionary and Communications were the laggards, eking out a positive return of just 0.2% and 0.1%, respectively.
The Federal Reserve will decide on the next round of rate hikes in early November, and investors are pricing in an additional 0.75% increase. As a result, the 10-year yield closed October 14th at 4.01%. That marked the 10-year yield’s highest closing level since October 2008. Before the slight pullback during the last trading week of October, the 10- year yield marked 11 consecutive weeks of gains. With such a rapid rise in yields, it should come as no surprise that the Bloomberg U.S. Aggregate Bond Index settled down -1.30% for the month and is currently down -15.72% for the year.
Although October can evoke fear on Wall Street following stock market crashes (ie.1929, 1987 and 2008), it lived up to its reputation as being the best month in US midterm election years. Now traders are holding out hope this October will follow a historical pattern of being a “bear-market killer” following a turbulent year for equities. “November has historically been one of the strongest months of the year for US stocks,” said Bespoke Investment Group. The S&P 500 has experienced an average gain of 0.82% with positive returns 69% of the time, according to data going back to 1983. Over the last 10 years, the gauge saw a median advance of 1.26% and gains nine out of 10 times.
Beautiful Fruit That Can Help Your Body Fight Cancer
Exciting findings from a new study show that a substance found in pomegranates significantly boosts the immune system to fight cancer, triggering a constant supply of endless rejuvenated T cells. German scientists studying therapies for colorectal cancer discovered that a metabolite in the red fruit, known as urolithin-A, rejuvenates immune T cells to make them better at fighting tumors.
When the pomegranate agent is introduced, old and damaged mitochondria in the T cells are removed and replaced by new, functional ones. This changes the genetic make-up of the T cells, which are then more capable of fighting the tumor.
“Our findings are particularly exciting because the focus is not on the tumor cell but on the immune system — the natural defense against cancer,” said Dr. Dominic Denk of the Frankfurt University Hospital and first author of the study.
Learn more about this exciting discovery and its implications in this informative article.
THOUGHT FOR THE MONTH
Dow Jones Industrial Average: The Dow Jones Industrial Average® (The Dow®), is a price-weighted measure of 30 U.S. blue-chip companies. The index covers all industries except transportation and utilities.
Dow Jones U.S. Real Estate Total Return Index: The index is designed to track the performance of real estate investment trusts (REIT) and other companies that invest directly or indirectly in real estate through development, management, or ownership, including property agencies.
NASDAQ Composite: The NASDAQ Composite is a market-cap weighted index of all issues listed on the Nasdaq stock exchange. It is heavily weighted towards the technology sector.
S&P 500 Bond Index: The S&P 500® Bond Index is designed to be a corporate-bond counterpart to the S&P 500, which is widely regarded as the best single gauge of large-cap U.S. equities. Market value-weighted, the index seeks to measure the performance of U.S. corporate debt issued by constituents in the iconic S&P 500.
S&P 500 Consumer Discretionary: The S&P 500® Consumer Discretionary comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer discretionary sector.
S&P 500 Consumer Staples: The S&P 500® Consumer Staples comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer staples sector.
S&P 500 Energy: The S&P 500® Energy comprises those companies included in the S&P 500 that are classified as members of the GICS® energy sector.
S&P 500 Financials: The S&P 500® Financials comprises those companies included in the S&P 500 that are classified as members of the GICS® financials sector.
S&P 500 Index: The S&P 500® index is a market-cap weighted index of the largest 500 companies headquartered in the United States. The index covers approximately 80% of available market capitalization.
S&P 500 Utilities: The S&P 500® Utilities comprises those companies included in the S&P 500 that are classified as members of the GICS® utilities sector.
S&P U.S. Aggregate Bond Index: The S&P U.S. Aggregate Bond Index is designed to measure the performance of publicly issued U.S. dollar denominated investment-grade debt. The index is part of the S&P AggregateTM Bond Index family and includes U.S. treasuries, quasi-governments, corporates, taxable municipal bonds, foreign agency, supranational, federal agency, and non-U.S. debentures, covered bonds, and residential mortgage pass-throughs.
S&P U.S. Treasury Bond Index: The S&P U.S. Treasury Bond Index is a broad, comprehensive, market-value weighted index that seeks to measure the performance of the U.S. Treasury Bond market.
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