Weekly Market Commentary - October 20th, 2022

The Markets

Investors are understandably eager for the stock market to hit bottom. Some hoped it happened last week, but it did not.

Despite the recent rate hikes, last week the (U.S.) consumer price index showed the annual rate for headline inflation was 8.2 percent in September (Canada’s CPI increased 6.9 percent over the same period, but as the baskets of goods contained in the CPI are not exactly the same on both sides of the border, this is not an exact comparison). That’s down from June when the annual inflation rate was 9.1 percent, but a long way from the Federal Reserve’s two percent target. The core inflation numbers, which exclude food and energy, hit at a 40-year high last month.

The news rocked the markets. “A lot of investors are looking at inflation to get guidance on what the Fed is going to do, to find the bottom in the market once the Fed pivots…But looking at CPI, unemployment, there’s obviously a lot of heat in the economy. Inflation is going to take some time to come down,” said a source cited by Stephen Kirkland and Lu Wang of Bloomberg.

After the news broke on Thursday, the S&P 500 index fell 2.4 percent. The sharp drop made some investors wonder whether the bear market had finally bottomed, but the Index reversed course and finished the day up 2.6 percent, reported Barron’s. That’s a big swing.

Then, on Friday, the University of Michigan’s Consumer Sentiment Survey was released. The good news was consumers were feeling slightly more optimistic in September. The bad news was expectations for inflation over the coming year rose slightly. Survey participants anticipated inflation would average 2.9 percent over the year ahead.

Inflation expectations are important because inflation has a psychological component. If people expect inflation to be higher – and behave that way – then they could cause inflation to move higher. For example, if a company expects higher inflation, it may increase prices at a faster rate than it would otherwise. If workers expect inflation to move higher, they may ask for larger wage increases than they would otherwise. These types of actions push inflation higher.

The S&P 500 headed down again on Friday and finished the week lower. The Nasdaq Composite Index also finished down, while the S&P/TSX Composite and the Dow Jones Industrial Index moved. Treasury and Government of Canada bond rates rose on both sides of the border last week.

If you have any questions or concerns about recent market events, please don’t hesitate to get in touch.

Source: FactSet

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Food for thought...

When markets are volatile, it is difficult to be an investor. Headlines shout about losses. Quarterly statements show a significant drop in the value of savings and investments. It becomes all too easy to focus on short-term market movements and lose sight of long-term financial goals.

When market volatility produces anxiety, it may help to consider the words of people who have spent decades investing successfully through bull and bear markets.

“It’s waiting that helps you as an investor, and a lot of people just can’t stand to wait. If you didn’t get the deferred-gratification gene, you’ve got to work very hard to overcome that.”

—Charlie Munger, Warren Buffett’s right-hand

“Investing isn't a game to be won. At the end of the day, it's a way to achieve your big goals, like buying that home, starting that business, and retiring on your own terms.”

—Sallie Krawcheck, investment company CEO

“The stock market is a giant distraction from the business of investing.”

—John C. Bogle, the father of index funds

“The most important thing is to stay the course – not to get shaken out of the market during a difficult time.”

—John W. Rogers, Jr., investment company Chair and CEO

“Never is there a better time to buy a stock than when a basically sound company, for whatever reason, temporarily falls out of favor with the investment community. When bad things happen to good companies, it must be viewed as a buying opportunity rather than a bailout.”

—Geraldine Weiss, the blue chip stock guru

If recent market activity has left you questioning whether investing is a good idea, please get in touch. We’re happy to listen and discuss your experience, concerns, and financial goals.

Weekly Focus – Think About It

“Our latest survey finds 40 percent of money managers bullish about the outlook for stocks over the next 12 months, and 30 percent bearish. The bullish cohort has increased from 33 percent since the spring edition of the poll, which found a plurality of managers neutral, but the bearish contingent has also grown from 22 percent...In interviews, many big money managers sound more bullish than survey results suggest. Markets might stay volatile and challenging for the next year, but opportunities abound to scoop up quality stocks at cheap valuations. For investors whose time horizon extends well beyond a year, the current environment looks to be a gift.”

—Barron’s Big Money Poll, October 13, 2022

Best regards,

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