“If you are not confused, you have no idea what is going on.”
– Charlie Munger (Billionaire Investor discussing the current market)
“What a long strange trip it’s been”
- Jerry Garcia
Last Week's Market Recap:
- The S&P 500 was down -.17% for the week. Year-to-date the index is down -20.03%.
- Large-Cap Value leads performance YTD at -9.94%.
- NASDAQ closed the week down -1.93% and is down -32.35% YTD.
- Barclays Aggregate Bond index is down -12.44% YTD.
- 10-Year Treasury Rate increased, ending the week at 3.75% from 3.48% the prior week.
- Fed Funds Target rate is 4.50%.
- The 1-Year Treasury is yielding 4.73%.
- A 6 Month Treasury is yielding 4.67%.
- What is your savings account rate?
- With the Fed Funds Rate at 4.5%, and the 6 Month Treasury at 4.67%... This is the bond market saying, we're approaching an end of rate hikes.
The week ahead:
- Case-Shiller National Home Price Index
- Pending Home Sales
- Chicago PMI (insight into economic health of manufacturing)
2022 has certainly been a unique market. Below is quick month by month recap:
- S&P peaked on Jan 3rd.
- Worst January for stocks since 2008.
- Russia invades Ukraine.
- Oil surged above $100 per barrel.
- Food supplies disrupted. Inflation becomes a major fear.
- The fed was already behind in terms of raising rates. The timing of this invasion made the Fed’s job much tougher.
- Biggest inflation jump in recent history.
- The Fed’s first rate hike. Fed raised 25bps.
- The 2-year Treasury skyrocketed from 1.3% to 2.5%.
- S&P 500 drops -8.8%.
- Nasdaq 100 drops -13.6%.
- Barclays Aggregate Bond Index falls for the 5th month in a row.
- “Stagflation” dominated headlines.
- Bonds continued to fall.
- Bear Market for S&P 500 became official.
- Fed increased rate hikes to 75bps.
- VIX spiked. Volatility was extremely high.
- First half of 2022 was the worst first half of a year for Treasury Bonds since 1788!
- Worst 6 month start to a year for the Nasdaq ever.
- Negative sentiment was extremely high!
- Q2 Earnings weren’t as bad as expected.
- Recession became a consensus view.
- The Labor market remains strong.
- Bear market rally.
- Stocks recovered 53% off the lows.
- Jerome Powell’s ends the bear market rally with his Jackson Hole speech.
- “While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”
- England’s PM, Liz Truss suggested tax cuts while going into inflation. The British Pound plummets.
- Inflation data continues to come in hot.
- US Dollar peaked.
- Stocks are pricing in numerous rate hikes, runaway inflation, earnings revisions, layoffs, crashing home prices, energy shortages, a potential sovereign debt crisis, and chance of nuclear war.
- Liz Truss resigns.
- S&P 500 hits its 2022 low.
- 8% inflation print.
- For the Fed: the September CPI report, Producer Price Inflation (PPI), and a strong Jobs report, gives them little reason to deviate from their recent hawkish forward guidance on rate hikes.
- Yields peaked, Stocks rallied.
- Fed raised 75bps again.
- Inflation is starting to cool.
- Cooler inflation gives the Fed room to SLOW their rate hikes. This does not mean the Fed will “PIVOT.”
- Inflation is easing, but the Fed remains hawkish.
- Bonds are holding up.
- We’ll be entering 2023 with extremely attractive short term rates.
- This could serve as a solid foundation for good returns for both stocks and bonds after a very difficult 2022.
- Corporate Earnings will be in focus in Q1 2023.
- If corporate earnings hold up, markets could see a nice rally.
- If corporate earnings are weak, markets could go lower in the short term.
- Extremely attractive short term rates offer protection from a potentially volatile stock market.
Source: * Fidelity
As always, let us know if you have any questions.
CRA Investment Committee
Matt Reynolds CPA, CFP®
Tom Reynolds, CPA
Robert T. Martin, CFA, CFP®
Gordon Shearer Jr., CFP®
Jeff Hilliard, CFP®, CRPC®
Joe McCaffrey, CFP®
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