October is now behind us and it has delivered on its track record as a historically favorable month for stocks, offering some respite for investors as major equity indices rose for the month. The downside pressure on equities had gotten a bit overdone after investor pessimism during September reached lows not witnessed in quite a few years. From a contrarian perspective, extreme pessimism can often be followed by a market bounce. Such a reaction can serve as a reminder not to react too quickly to near-term market developments. Gains in October helped deliver that message again, though they have only slightly offset this year’s losses during what has been a very tough environment for capital markets.
While it may be easy to consider the October market reaction temporary, there are some potentially sustainable developments that may continue to provide a slight tailwind. First, investors may have begun to look beyond current inflation pressures and the Federal Reserve (Fed) monetary policy tightening cycle toward potentially better conditions in 2023. The market is always forward-looking, and asset prices tend to reflect what may happen months or quarters ahead. If investors continue to look ahead to better inflation readings (inflation has been coming down after peaking in June) and an eventual end to the Fed’s rate hikes, asset prices may begin to more regularly reflect some budding optimism.
As we look ahead, the months of November and December and into 2023, we feel that it is wise to be taking advantage of the higher rates on CDs (4% + in for 18 months!) and a switch to low volatility alternatives to replace some holdings in bonds for fixed income. We are adding energy to some portfolios, and also removing Europe and some Asia for the time being. We work with our clients to meet their individual needs and situation. While we have been doing some tax harvesting on non-retirement accounts for clients so that future capital gains can be offset by the losses being taken, we know that each client has different needs in this area.
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This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
All data is provided as of November 1, 2022.
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All index data from FactSet.
The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
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