October 2022 in Review

by Daniel Zeigler, CFP®, CMFC®, Senior Portfolio Manager

Welcome to the monthly market update from Midland Wealth Management. I am Dan Zeigler, Senior Portfolio Manager. Today I just wanted to take a few minutes to give you an update on the markets for the month of October.

October was a great month for the stock market as long-term investors were rewarded. In fact, the Dow Jones Industrial average had one of its biggest monthly gains in more than 45 years, as the index ended up 14% for the month. The more diversified S&P 500 index was up around 8% for the month as ten of the 11 sectors rose this month, with energy leading the way higher. Even the NASDAQ increased by 4%. Small-cap stocks also had a significant rebound, in which the index was up around 11% for the month. One of the drivers leading to the rally in October has been stabilizing yields, potential signs of inflation peaking, and anticipation that the Federal Reserve may begin to pivot and slow down their rate hikes.

Bonds have experienced one of their worst years in decades as interest rates moved significantly higher this year. The 10-year Treasury bond yield topped 4% for the first time since 2010. As yields go higher, bond prices move in an inverse direction, which has caused most bond indexes to be down anywhere from 10 to 15% this year. Bonds and cash are now competition to stocks, as investors can purchase a 1-year Treasury with a yield around 4.5% and money markets are paying close to 3%. Going forward, bond funds will offer higher yields to investors, which should help offset some of the short-term losses this year.

So far, more than half of the companies in the S&P 500 have reported results and have shown an overall earnings growth rate of 2.3% this quarter. The majority of the growth has come from the energy sector. Big technology names have disappointed investors, as the stronger dollar has hurt profits and the slowing economy makes for a cautious outlook.

November is going to be a busy month for economic data, Federal Reserve updates, and the mid-term election results. The Fed begins their two-day meeting today and will likely announce another 75-basis point increase in the Fed Funds rate tomorrow, which will bring the rate to about 3.75%. The market will be closely watching for any clues Jerome Powell may give about future Fed Fund increases and any updates on the inflation progress. On Friday, the market is expecting that the economy to have created another 200,000 jobs for the month and for the unemployment rate to slightly tick up from 3.5% to 3.6%.

We remain cautious as we head into the final months of the year as our investment team continues to monitor all economic data and make tactical adjustments. This market rebound could be another bear market rally, like the one we saw in June, in which the S&P 500 rallied about 17% from its lows. Given the current environment, we remain close to market weight in equities and have not been hesitant to keep an overweight to cash compared to bonds, given the money market rates will likely continue to follow the Fed Fund’s rate increases.

As always, if you have any questions or want to speak to someone, please do not hesitate to reach out to us. Thank you and I hope everyone has a great day!