November 11, 2022
I delayed the market newsletter because over the past two weeks news stories kept the markets rolling. To begin, once again the Federal Open Market Committee (FOMC) raised interest rates by another ¾% on November 3rd. Rate hikes began in March and since then the FOMC has raised rates to 4.00%. They continue to try to tame inflation. Then we had mid-term elections that were not as surprising as election polls had predicted. This past Thursday, November 10, the Consumer Price Index (CPI) reported inflation numbers that were softer than expected, on a month-to-month and year-over-year basis, which helped to push the market up for the last two days. Just a note, the CPI numbers were lower than expected but inflation is still an issue with the FOMC, as we will see at next month’s meeting. For ten months the markets have been trending down. On October 12, the S&P 500 EFT (SPY), which tracks the S&P 500 index, hit a low of 348.11. Since that low, the markets have been struggling to trend higher. How long will it last? There are some additional indications that might continue to help the upside momentum. The US dollar dropped over 5% in the last two weeks. The 10-year treasury dropped from a high of 4.33% to close on Friday at 3.81%. Crude Oil has declined from over $120 in June to below $89 as of Friday. An indicator I follow closely (I always include it in the newsletter) is the percentage of stocks above their 50-day moving average. On October 20th only 17% of the stocks I track were trading above their 50-day moving average, today 81% of stocks are above their 50-day moving average. That is a significant change in a short period. So finally, after 10 months of declines, we may get a Santa Clause rally after all. We will be watching.
The VIX Index closed Friday at 23.17 after a recent high of 34.88 on 9/28. On October 3rd it was at 31.45. A falling VIX is normally bullish for the markets. Another good sign.
Percent of stocks above their 50-day and 200-day moving average: On 10/3, less than 10% of stocks were above their 50-day moving average, today 81% are above their 50-day moving average. Last month 17% of the stocks were above their 200-day moving average, today 53% are above their 200-day moving average. These numbers are supporting the upside momentum.
Federal Reserve: On November 2nd the Federal Reserve approved another ¾ percentage point increase in the primary credit rate to 4.00 percent. The next FOMC meeting announcement will be Wednesday, December 14th. As of today, the CME FedWatch Tool is predicting an 80% chance of another ½% percentage increase. Less than the last four ¾% percentage increases.
Employment Rate: Total nonfarm payroll employment increased by 261,000 in October, and the unemployment rate rose to 3.7 percent, the U.S. Bureau of Labor Statistics reported on November 4th. Notable job gains occurred in health care, professional and technical services, and manufacturing.
Inflation Rate: The annual inflation rate for the United States is 7.7% for the 12 months ended October 2022 after rising 8.2% previously, according to U.S. Labor Department data published Nov. 10. The next inflation update is scheduled for release on Dec. 13 on 8:30 a.m. ET. It will offer the rate of inflation over the 12 months ending November 2022.
The 10-year Treasury index yield: The rate today is at 3.81%. On October 3rd it was at 3.66%. The high so far for this year was on 10/21 at 4.33%.
To view past Market Newsletters, go to www.freedomcapitalmanagement.com. On the home page are recent newsletters, for older newsletters go to the blog page tab at the top of the home page.
In this month’s recap: Stocks posted big gains in October as “old economy” names reported solid earnings while mega-cap techs struggled.
Monthly Economic Update
Presented by Guy Woolley, November 2022
U.S. Markets
Stocks posted big gains in October, propelled by better-than-expected corporate reports.
The Dow Jones Industrial Average led, gaining 13.95 percent. The Standard & Poor’s 500 Index tacked on 7.99 percent, while the Nasdaq Composite added 3.90 percent.1
A Volatile Few Weeks
October opened with a powerful two-day rally, but the momentum faded. News that Britain’s prime minister had reversed her tax cut proposal helped spark the rally, but the gains were erased on renewed fears of higher interest rates and possible recession.2
Market volatility accelerated when a higher-than-expected consumer inflation number sent stocks tumbling in early trading before inexplicably staging a massive reversal that saw the Dow Industrial rally 1,500 points from its intraday low.3
Earnings Spark Rally
As earnings season opened mid-month, investors put aside worries about Fed policy and recession to focus on how companies fared in the third quarter.
By the end of October, 263 companies in the S&P 500 index had reported earnings, and 73.4 percent had topped Wall Street analysts’ estimates – above the 66 percent long-term average. Sales rose by 10.3 percent, but much of that gain was attributed to the effects of inflation.4
Mega-Cap Tech Blues
Several mega-cap technology names checked in with disappointing earnings for the quarter and provided weak guidance for the months ahead. The news surprised some investors and resulted in lower stock prices.
Old Economy Names Sparkly
While the mega-caps struggled with declining advertising, poor expense management, and a deceleration in cloud-computing growth, some “old economy” names checked in with quarterly numbers that were above expectations. For instance, in the industrials industry group sector, 83 percent of companies reported earnings above expectations compared with the 73.4 percent average.5
This divergence in third-quarter earnings between mega-cap tech and old economy names contributed to the wide dispersion in performance between the Dow Industrials and Nasdaq Composite this month.
Sector Scorecard
All industry sectors notched gains in October, with gains in Communications Services (+0.67 percent), Consumer Discretionary (+1.11 percent), Consumer Staples (+9.01 percent), Energy (+24.97 percent), Financials (+11.92 percent), Health Care (+9.61 percent), Industrials (+13.89 percent), Materials (+8.93 percent), Real Estate (+2.00 percent), Technology (+7.85 percent), and Utilities (+1.94 percent).6
What Investors May Be Talking About in November 2022
November will be a busy month for investors.
First, the market will be digesting another Fed change to interest rates and the outcome of the midterm elections. Investors will also be getting updates on inflation and the labor market.
The Consumer Price Index is set for release on November 10th, and investors will be anxious to see if inflation is moderating. The Producer Price Index will be released on November 15th, providing insights into the cost pressures producers of goods and services face.
In addition, investors’ attention is expected to be focused on monthly employment reports and the weekly initial jobless claims. Trends in the job markets and wage growth will play a role in the Fed’s future decisions about interest rates.
T I P O F T H E M O N T H
Collaboration among investment, legal, and accounting professionals may make a big difference in the scope and execution of a financial strategy.
World Markets
Overseas markets rebounded in October, as political uncertainty in the UK started to get resolved and energy security in Europe improved. For the month, the MSCI EAFE Index picked up 5.26 percent.7
In Europe, Italy rose 9.7 percent, and Germany gained 9.41 percent. Elsewhere, France tacked on 8.75 percent, and Spain advanced 8.0 percent. The UK lagged, adding less than 3 percent.8
Pacific Rim markets were mixed. Hong Kong dropped 14.72 percent due to investor concerns following the meeting of China’s Communist Party. Meanwhile, Japan rallied 6.36 percent, and Australia advanced 6.01 percent. Mexico also caught the eye, picking up nearly 12 percent.9
Indicators
Gross Domestic Product: The initial estimate of third-quarter GDP growth came in at an annualized rate of 2.6 percent, exceeding economists’ consensus of a 2.3 percent estimate.10
Employment: Employers added 263,000 jobs in September as the unemployment rate fell to 3.5 percent. Wage growth of 5 percent in September was below August’s gain of 5.2 percent. Labor force participation rate slipped to 62.3 percent.11
Retail Sales: Consumer spending was flat in September compared to August, but spending was 8.2 percent higher than a year ago.12
Industrial Production: Industrial production rose 0.4 percent in September, while capacity utilization increased to 80.3. Capacity utilization was 0.7 percent above its long-term average.13
Housing: Housing starts dropped 8.1 percent in September as higher mortgage rates tempered demand for new homes.14
September’s existing home sales slipped 1.5 percent month-over-month while falling 23.8 percent year-over-year. It was the eighth consecutive month that sales declined.15
New home sales fell 10.9 percent while posting a 17.6 percent decline from a year ago. The median sales price rose, though it remains below the record high of July.16
Consumer Price Index: Prices increased 0.4 percent in September. The year-over-year increase was 8.2 percent. Core inflation (excluding energy and food) rose 0.6 percent in September and was higher by 6.6 percent from a year ago. The annual gain in core prices was the highest in 40 years.17
Durable Goods Orders: Orders for long-lasting goods rose 0.4 percent. Civilian aircraft orders led to the sixth-monthly increase in durable goods orders in the last seven months.18
Q U O T E O F T H E M O N T H
“Your time is limited, so don’t waste it living someone else’s life.”
Steve Jobs
The Fed
Minutes from September’s Federal Open Market Committee (FOMC) meeting reflected members’ concern over persistently high inflation.19
The FOMC members agreed that additional rate hikes would keep inflation from becoming embedded into the economic landscape and help prevent greater economic pain in the long run. Several members also expressed worries that overdoing such rate increases might raise the risk of economic and financial market volatility.19
| MARKET INDEX | Y-T-D CHANGE | October 2022 |
| DJIA | -9.92% | 13.95% |
| NASDAQ | -29.77% | 3.90% |
| S&P 500 | -18.76% | 7.99% |
| BOND YIELD | Y-T-D | October 2022 |
| 10 YR TREASURY | 2.57% | 4.08% |
Sources: Yahoo Finance, October 31, 2022.
The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results. U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid.
T H E M O N T H L Y R I D D L E
I’m dressed in a golden jacket. I take it off abruptly, accompanied by a loud noise. When I do, I become larger, but I weigh less. What am I?
LAST MONTH’S RIDDLE: Take a 5-letter word identifying a crop. Take away the first letter, and you have a form of energy. Take away the first 2 letters and you have a verb. Rearrange the 3 letters left and you have a drink. What is this 5-letter word?
ANSWER: Wheat.
Guy Woolley may be reached at 415-236-5364 or guy@freedomcapitalmanagement.com
www.freedomcapitalmanagement.com
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This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. The information herein has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs, or expenses. Investors cannot invest directly in indices. All economic and performance data is historical and not indicative of future results. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is a market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The FTSEurofirst 300 Index comprises the 300 largest companies ranked by market capitalization in the FTSE Developed Europe Index. The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. Established in January 1980, the All Ordinaries is the oldest index of shares in Australia. It is made up of the share prices for 500 of the largest companies listed on the Australian Securities Exchange. The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. The Hang Seng Index is a free float-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. The FTSE TWSE Taiwan 50 Index is a capitalization-weighted index of stocks comprising 50 companies listed on the Taiwan Stock Exchange developed by Taiwan Stock Exchange in collaboration with FTSE. The MSCI World Index is a free-float weighted equity index that includes developed world markets and does not include emerging markets. The Mexican Stock Exchange, commonly known as Mexican Bolsa, Mexbol, or BMV, is the only stock exchange in Mexico. The U.S. Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability, and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. MarketingPro, Inc. is not affiliated with any person or firm that may be providing this information to you. The publisher is not engaged in rendering legal, accounting, or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.
CITATIONS: 1. WSJ.com, October 31, 2022 2. CNBC.com, October 4, 2022 3. CNBC.com, October 13, 2022 4. LipperAlpha.Refinitive.com, October 28, 2022 5. LipperAlpha.Refinitive.com, October 28, 2022 6. SectorSPDR.com, October 31,2022 7. MSCI.com, October 31, 2022 8. MSCI.com, October 31, 2022 9. MSCI.com, October 31, 2022 10. WSJ.com, October 27, 2022 11. CNBC.com, October 7, 2022 12. CNBC.com, October 14, 2022 13. FederalReserve.gov, October 18, 2022 14. Finance.Yahoo.com, October 19, 2022 15. CNBC.com, October 20, 2022 16. MarketWatch.com, October 26, 2022 17. CNBC.com, October 13, 2022 18. Investing.com, October 27, 2022 19. WSJ.com, October 13, 2022