The markets continued their rollercoaster ride in October as investors questioned whether rebounding prices were a bellwether of a larger economic recovery or just symptoms of another bear market rally. Broadly speaking, the month provided some much-needed respite for many investors after a difficult September saw market sentiment deteriorate on falling stock prices and economic growth concerns. After encouraging GDP results revealed better-than-expected economic growth in the face of rising rates and persistent inflation, a widespread stock rally led all three major indexes to finish October in the green. The S&P 500 gained 5.26% on the month, while the Dow Jones enjoyed a more significant 10.99% bump. The tech-heavy Nasdaq, on the other hand, rose 6.70% despite diminished revenue expectations among tech giants like Microsoft and Alphabet Inc., Google’s parent company. Speaking of GDP, economic growth picked up in Q3, rising 2.6% to snap two consecutive quarters of decline. Despite this, consumer spending showed signs of slowing last quarter as inhibitive interest rates and inflationary pressures continue to weigh on Americans at the grocery store, the gas pump, and the bank. In a continuation of the most aggressive tightening cycle in decades, the Federal Reserve is expected to announce yet another 75 basis point interest rate hike when it convenes in early November. If it comes to pass, this would be the sixth rate increase in 2022 and the fourth-straight increase of this magnitude. The Fed remains committed in its fight against inflation, but it may consider decelerating its rate-hiking efforts going forward to avoid pushing the economy into a recession if it can. The effects of rising interest rates are being felt at all levels of the economy, from corporations and institutional investors all the way down to individual consumers. This year, IPOs have raised roughly $7 billion to date—a 94% decrease compared to this time last year—as companies are forced to cut their valuations and seek private funding. Corporate profits are largely driven by access to capital and with borrowing costs climbing, companies aren’t able to fund their expansion as efficiently. On the consumer side of things, new home sales dropped 10.9% month-over-month and 17.6% year-over-year. Existing home sales fell for the eighth consecutive month and mortgage applications declined by over 40%. Home values also slid further in September as the housing market continues to cool from its historic pandemic levels. Action Steps Taken: - Continued reduction of international stocks - Buying T-Bills - Adding to energy names
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