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Steve’s October 2022 Newsletter

How did investor sentiment all around the world change so fast? No one saw the October 3rd rally coming! In September almost every financial writer and commentator was talking about an imminent collapse of the S&P 500 to a new low. So, what happened? It’s easy to now say the market was way oversold! Or that most financial institutions were making their end of quarter reports look better by selling losing positions in order to buy them back after the first of the month! They wouldn’t do that, Would they?

What caused this swing in sentiment? Is inflation no longer an issue? Has Russia decided to end their aggression? Has the Federal Reserve decided not to raise interest rates after they made clear that "a sustained period of below trend growth" may be necessary? No, it’s because Wall Street for the moment believes the Federal Reserve isn’t likely to become any more aggressive on interest rate hikes. Any hint of an interest rate change immediately whipsaws the bond and stock markets.

The Federal Reserve used to look primarily at models and member opinions to determine the future need for interest rate and other monetary changes. They were making educated decisions based on where the models told them to go! But that changed when the Federal Reserve said they are now watching real data points. The same information we see, in real time. So now, every economic statistic, employment numbers or manufacturing index announcement, good or bad, drives markets immediately up or down!

I've always said that moving in and out of the market is never a good investment strategy, especially in a volatile market like this. Missing just a few of the best days each year can severely impact your overall lifetime returns. Nothing drives that home faster than the dramatic market about face between the close Friday, Sept 30 and the open Monday, October 2nd.

Every investor wants to put the last nine months in the rear-view mirror. The worst YTD since 2002: The Dow down 20.95%, NASDAQ down 32.40% and the S&P 500 down 24.77%.

Historically October and November have been positive months, especially in a mid-term election year. Inflationary pressures are likely to slow. Employment should remain strong, although rising mortgage interest rates are slowing the housing market. Rising interest rates will probably put a damper on corporate earnings in early 2023. The market will probably continue its roller coaster turbulence in response to Fed moves. Hopefully, this positive start to the quarter will continue. Markets do not go up or down in a straight line!

 As we enter the final three months of 2022, many questions persist on whether the economy will remain relatively positive or head toward a typical recession!

 As always if you have questions about your Newmarket Advisors portfolio or any other financial matter, please do not hesitate to contact me.


 Steve Newman