September 2022 Stock Market Commentary
Ethan Pollard | October 06 2022
Markets continued their slide in September, marking the third consecutive quarter of declines for both stocks and bonds as 2022 proves to be a challenging year for investors.
The S&P 500, a benchmark for large cap US stocks, fell -9% on the month and is now down -25% for the year, on track for its worst annual return since 2008.
Overseas equities declined -10% in September for a -26.5% full-year return on the MSCI ACWI ex-US Index, with the European economy teetering on the brink of a recession as the fallout from the war in Ukraine continues.
Within fixed income, bond prices fell as rates climbed, with Treasury yields topping 4% at both the short- and long-ends of the curve. The Fed hiked interest rates another 0.75% this month as expected, though their hawkish projection for future interest rates alongside hotter-than-anticipated inflation data roiled bond markets.
The Barclays US Aggregate Bond index fell -4% in September and is down -15% year-to-date, which if it holds would mark the first double-digit decline in the index’s 46 year history.
Commodity prices fell -8% in September, a silver lining in the fight against global inflation, though the Bloomberg Commodity Index is still up +14% YTD.
With fear and alarmism returning to the headlines, we continue to filter the data through our proprietary Three Dials framework, which was unchanged during the month of September as we summarize below:
- Market Sentiment and Momentum: (Negative ❌)
Bearish sentiment amongst individual investors reached its highest level in September since 2009 according to AAII survey results.
While this extreme pessimism could represent a potential sign of “capitulation” for stock sellers, our Momentum Dial remains in a “Negative” position until we see signs of a technical recovery.
- Economic Fundamentals: (Neutral ➖)
Despite all the chatter around a recession, the US labor market remains incredibly robust, with weekly unemployment claims reaching a five-month low in September.
Additionally, new orders across manufacturing and services returned to expansionary territory in what would signal a reversal of a previous downward trend in another key leading indicator.
Reasons for optimism amidst global economic uncertainty leaves our Fundamental Dial in a “Neutral” position through the end of the quarter.
- Valuation: (Neutral ➖)
Equity valuations sit largely in-line with long-term averages, as we head into quarterly earnings season where companies have again set a low bar to hopefully clear and provide a boost to prices heading into year-end.
While we await additional guidance from global corporations, our Valuation Dial remains “Neutral”.
Our Three Dials composite reading takes a Slightly Defensive approach in the final quarter of the year, with two dials taking a Neutral position while one dial remains fully Off.
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