Quarterly Market Commentary
CFG Wealth Management – Fall 2022 Market Update and Economic Commentary – October 13, 2022
There’s a saying I hear around the grass fields of youth sports from time-to-time, usually from coaches looking to get the most out of their players before a big game; start strong, finish stronger. While stock and bond markets got the start strong part right in the 3rd Quarter of 2022, the finish left a lot to be desired.
After a significant summer rally in the S&P 500 index of 17.4% off the lows set mid-June, markets resumed this year’s downturn two months later, culminating in heavy selling through September, taking market values back to the previous lows. For the quarter, the S&P 500 recorded a net loss of -4.90%, with a loss of a whopping -9.34% in September alone, and finishing the quarter with a -24.77% decline on the year. Bonds didn’t fare much better as interest rates once again turned higher, with the Bloomberg US Agg Bond Index notching a -4.80% loss for the quarter.
So what happened? In July, the market had begun to focus on the possibility of interest rate cuts from the US Federal Reserve in 2023, given concerns about slowing growth, which created some optimism and drove stock prices higher. However, such hopes were dashed at August’s Jackson Hole summit of central bankers, where the Fed reaffirmed its commitment to fighting inflation. The Fed raised the federal funds rate by 75 basis points to 3.25% in September; the third consecutive 75bps increase. To make matters worse, The Fed’s preferred measure of inflation (the core personal consumption expenditure index) ticked up again in August on a year-over-year basis – from 4.7% to 4.9%, further adding to concerns about how far the Fed would need to go with monetary tightening. There’s no other way to slice it … September was a rough month for investors, and your monthly account statement values reflected that. However, it should be noted that as of the end of September, the S&P 500 was only 2.2% lower than the previous low set on June 16th. During bear markets it can sometimes feel like the market does nothing but go down, but in reality, the market has essentially been flat over the past 3 ½ months. There are often several strong rallies during bear market declines, a fact that is important to keep in mind.
During bear markets and recessions, there’s a tendency for correlations to rise, with many assets moving in the same direction: down. While it’s tempting to abandon your diversified portfolio, that has not been a prudent strategy in the past. Markets move first, and they’ve already adjusted to increased volatility. The question looms, is the draw down seen in the first three quarters of the year significant enough to constitute a market bottom? While we do not have a crystal ball, what we do know is that we’ve seen recessions in the past where the S&P 500 has declined less (most recent example: 1990 – 91 recession) and some during which the S&P 500 has declined more (most recent example: 2008-09 financial crisis). A couple comforting thoughts to assuage the worried minds of long-term investors: 1) bear markets and recessions have always been significantly shorter than bull markets and expansion periods, and 2) all previous bear markets and recessions have ended in new expansions that led to new, all-time highs at some point in the future. Historically, if you stayed the course, you were inevitably rewarded. With the Fed firmly on the brakes at a time when economic growth is already slowing, the macroeconomic backdrop remains challenging, requiring continued patience from investors. But this period WILL end, possibly sooner than many think. Nobody can say with certainty where stocks will eventually bottom, but what we can say is stock markets have already priced in a lot of potential bad news, and the amount of value decline in the broader markets this year has reached the range of the average of previous recessionary declines. This could indicate that an end is in sight.
We again want to emphasize that if you have individual concerns or questions, we are always available to you to address those concerns and review your investment results and strategy moving forward. Whatever your individual situation is, rest assured that we are monitoring your portfolios extremely closely and we are regularly evaluating any changes to holdings or weightings that we think may help in this environment. During times like these, the best course of action can sometimes be no action, and where patience and prudence can be the most critical action investors can take. If you would like to discuss your accounts or any concerns you may have, please call us right away at (858) 550-3960 or (800) 884-5121 or contact us via email and we’ll get back to you right away.
Bryce R. Alvari, CFP®
Registered Representative, Securities America, Inc.
Financial Advisor, Securities America Advisors, Inc.
CA Insurance License #0K07112
4370 La Jolla Village Drive, Suite 630
San Diego, CA 92122
(858) 550-3960 (phone)
(858) 550-3969 (fax)
Securities offered through Securities America Inc., a Registered Broker/Dealer Member FINRA/SIPC, Advisory services offered through Securities America Advisors Inc., an SEC Registered Investment Advisor, CFG Wealth Management and Securities America are not affiliated. Trading instructions sent via e-mail may not be honored. Please contact my office at (858) 550-3960 or Securities America, Inc. at (800) 747-6111 for all buy/sell orders. Please be advised that communications regarding trades in your account are for informational purposes only. You should continue to rely on confirmations and statements received from the custodian(s) of your assets. The text of this communication is confidential, and use by any person who is not the intended recipient is prohibited. Any person who receives this communication in error is requested to immediately destroy the text of this communication without copying or further dissemination. Your cooperation is appreciated. 10/22