Market Commentary — October 3, 2022
Turmoil in UK financial markets and lack of confidence in hawkish Fed actions sent stocks to their third consecutive weekly decline for the first time since 2009. The S&P 500 Index broke below its mid-June lows, retreating to November 2020 levels. And the 10-year Treasury breached 4% for the first time since 2008.
There is mounting evidence around the world that the Fed has destabilized and even broken global financial markets. There are rumors that Credit Suisse is teetering on collapse and the UK is not the only economy being strained by the surging US dollar.
There appears to be an emergency, closed-door session of the Fed planned on Monday, and there is speculation the Fed may need to end quantitative tightening (QT) earlier than planned to support the U.S. Treasury market.
There is also worry that whipsawing markets will expose the weak hands of asset managers, hedge funds, and other players who may be overleveraged or take on risky bets. Margin calls and forced liquidations could further unsettle markets. In addition, so-called “zombie companies” that have managed to stay afloat in a low-rate environment, may finally have their day of reckoning.
After a down 8.6% September, it is heartening to know that every time the S&P 500 has dropped 7% or more in September, stocks have done well in October according to Carson Group’s Ryan Detrick.
In ETF news, Blackrock plans to launch a Metaverse ETF.
The Mid-Year 2022 SPIVA US Scorecard revealed that 51% of large-cap managers failed to beat the S&P 500, on track for the best rate in 13 years. Despite the better numbers this year in a bear market, long-term underperformance remains. After five years, the percentage of large caps underperforming benchmarks is 84%, and this grows to 90% and 95% after 10 and 20 years respectively.
Three fund managers have withdrawn applications for almost 130 single-stock exchange-traded funds prompting suggestions that US regulators had privately told them the ETFs would not be approved. Kelly Intelligence, Roundhill Investments, and Tema Global had filed with the Securities and Exchange Commission to create ETFs linked to the share price of a slate of non-US companies, such as Saudi Aramco, Volkswagen, and Tencent.
Here’s to a less spooky October.
CEO and Co-Founder