Week of October 3, 2022

Last month certainly lived up to its historical reputation of extreme volatility.  For the month of September, the U.S. equity markets suffered serious losses not seen since March 2020.  The Dow, closing last Friday below 29,000, and S&P 500 dropped 8.8% and 9.3%, respectively, while the tech-heavy NASDAQ lost 10.5%.  For the quarter ended September 30, the Dow fell 6.66% to record a three-quarter losing streak for the first time since the third quarter of 2015.  The S&P 500 and NASDAQ fell 5.28% and 4.11%, respectively, to finish their third consecutive negative quarter for the first time since 2009.

As the new quarter begins today, all S&P 500 sectors sit at least 10% off their 52-week highs.  Nine sectors finished the quarter in negative territory.  The economy faces elevated inflation and a Federal Reserve intent on bringing surging prices down regardless of what it means for the economy, according to Truist’s Keith Lerner.  Oversold conditions, however, also make the market vulnerable to a sharp short-term bounce on good news, he added.  “I think we could be set up for some type of reprieve but the underlying trend at this point is still a downward trend and choppy waters to continue, Lerner said.

All eyes are on the Fed and what action they may take their next meeting scheduled for November 1 and 2.  Some market watchers believe the Fed will raise short-term interest rates by a full 1% by year’s end and continue to raise rates well into 2023.  Their goal is to slow the economy, even to the point of recession, in order to cool the 40-year high inflation.  The problem is that 3rd quarter gross domestic product (GDP) is estimated to be 0.3% and that does not give the Fed much room before continuing the current two-quarter streak of negative GDP.