Two things are certain right now: hearing Mariah Carey’s “All I Want For Christmas” on the radio while I as putting away my Halloween decorations yesterday was absolutley too soon. The second is that October was a fantastic month for the markets.
There was plenty of good news to go around. The DOW had it’s best month since 1976! Inflation indicators continue to tic down. Unemployment fell to 3.5%, it’s lowest level in over 50 years. 3rd quarter GDP grew +2.6% annualized. (Coming off the slightly negative GDP of 1st & 2nd quarters, this was a welcome change.) Many companies released their 3rd quarter earnings, by and large showing stronger than expected results. Value (+11.5%) outpaced Growth (+4.4%) rather dramatically. The noticable misses, however, were clearly the mega-cap names. Microsoft, Google, Amazon all off while Meta (Facebook…I’ll always call it Facebook) unimpressed investors and fell -31% with Tesla -14%.
Here’s your numbers YTD:
Interest rates, specifically US Treasuries, increased noticeably in October. Political chaos in the UK caused some wild swings in rates all month long but the trend continues with fixed income rates looking the best they have in many, many years. Conservative investors looking for yields can get 1 yr Treasuries for 4.68% and investment grade bonds over 6% for short to intermediate range.
Brokered CD Rates as of right now:
Much has been said about the inverted rate curve this year as the 2 yr Treasury has been yielding more than the 10 yr Treasury for months. Many point out that an inverted yield curve predicts a recession. We pushed back on that narrative a bit earlier this year since an inverted 2 & 10yr can predict a recession, but there’s been many times it inverted and a recession did NOT follow. That said, a time-tested indicator that has not been wrong in the past is when the 3 mo & 10 yr Treasury inverts, recession has always followed at some point in the coming months. They inverted in October.
There are a couple historical market facts to be thankful about though. Traditionally, November is the best performing month of the year for markets. And we have the midterm elections next week. Going back to 1950, the markets have gone up in the 12 months following the midterm election every single time…regardless of the outcome! Will this midterm break that streak? We will see in the coming year. (By the way, the market returns over the following 12 months averaged around 14%).
So where does all that put us? While earnings and profits are still strong, they are clearly slowing. We do expect some type of recession in 2023, albeit a mild & short one. We expect continued volatility over the coming months and maintain our defensive positioning, avoiding international & emerging markets, focusing on quality over speculation, and taking advantage of the best interest rates we’ve seen in a decade.
Your Useless Fact of the Month:
In 1953 Swanson foods misjudged Thanksgiving demand and ordered 260 tons too much of frozen turkeys. Not sure what to do with that much excess turkey, one of their company salesmen, Jerry Thomas, suggested to create a pre-packaged dinner of turkey, dressing, peas & sweet potatoes on an aluminum tray. And that, ladies & gentleman, is how the TV Dinner was invented. (That still sounds better than eating Tofurkey though!)
Please reach out if you have any questions on your portfolio or would like a review.
Have a Happy Thanksgiving and, as always, thank you for being a client.
Sean & John