Market Commentary — October 22, 2022
Stocks regained some upward momentum last week, as investors reacted positively to earnings reports and hints that the Fed might moderate its pace of interest rate increases.
The S&P 500 experienced its largest weekly gain in four months, while the DJIA posted its third consecutive week of gains. Energy shares outperformed, as oil prices remained resilient despite an announcement of a release from the U.S. Strategic Petroleum Reserve. The reversal in the UK government’s fiscal policy and the resignation of PM Liz Truss was also a boost to sentiment.
On Friday, stocks bounced after The Wall Street Journal reported that “some officials have begun signaling their desire both to slow down the pace of increases soon and to stop raising rates early next year to see how their moves this year are slowing the economy.” In particular, the article cited warnings from Kansas City Fed President Esther George that “a series of very super-sized rate increases might cause you to oversteer and not be able to see those turning points.” “Oversteer” is the catchphrase Doubleline’s Jeff Gundlach has been using, so maybe the Fed is paying attention to Wall Street after all?!
Economic data remains a mixed bag. Homebuilder sentiment fell to its lower level in a decade, following sharp declines in mortgage applications and housing starts. Meanwhile, manufacturing production rose more than expected in September (up 0.4%), and jobless claims for the week ended October 15 fell much more than anticipated to their lowest level since late September. The 10-year U.S. Treasury note hit a 14-year high of 4.33% on Friday.
Analyzing FactSet’s Earnings Insights, for Q3 2022 (with 20% of S&P 500 companies reporting) 72% have reported positive earnings surprises and 70% have reported positive revenue surprises. But so far, the blended earnings growth rate for the S&P 500 is only 1.5%, which would mark the lowest rate of growth since Q3 of 2020 (-5.7%). But much of this is already priced into the market, with a forward PE ratio of 15.6, well below the 5-year average of 18.5 and the 10-year average of 17.1.
In ETF news, Strive just filed for a FAANG 2.0 ETF, which will include Fuel, Aerospace & Defense, Agriculture, Nuclear, and Gold+Base+Precious Metals. Gold just approached a 2-year low on the strong dollar, spurring ETF outflows in gold-backed ETFs. According to Bloomberg, holdings in the funds shrank by 12.5 tons on Wednesday, the biggest one-day decline since March 2021, extending a plunge that has endured for almost six months.
As we approach Halloween, hopefully, markets provide more treats than tricks next week.
CEO and Co-Founder