Market Pulse: Quarterly review
Stocks fell for the third straight quarter with the S&P 500 dropping 5.3%. There were no places to hide. Here are the losses through the third quarter: S&P 500 down 25%, Nasdaq Composite down 32%, Treasury bonds down 31%, investment-grade corporate bonds down 23%, gold down 10%, and Bitcoin down 60%. Just as in previous bear markets, securities of different asset classes fell in unison.
During the quarter stocks jumped in July and early August recovering half of their earlier losses. But the market quickly plunged back to its low when inflation remained stubbornly high and the Fed made it clear that rates are going higher still. Rising interest rates in a weakening economy, which is what we have, will cause or deepen a recession. The Fed doesn’t seem to care. Bringing inflation down to 2% is all that matters, they say, never mind the pain. Investors are concerned that the Fed will once again do too much for too long.
If there is any positive in the Fed’s action it’s this: the sooner rates rise to wherever they are going and peak (called the terminal rate) the sooner investors will be able to look forward to falling rates. That’s something. The Fed has said that the median outlook has rates peaking at 4.6% next year, higher than previously expected. As for inflation, for what it’s worth the Fed expects to reach its 2% target in 2025. Three more years of too high inflation? Slow or no growth coupled with inflation is what’s known as stagflation. No wonder today’s headlines are so dour.
The professionals on CNBC and Fox Business can’t see past today’s gloomy data. Is no one willing to say this is a good time to buy? Why is that? Have they discovered an asset class with a better long-term return? Of course, no such class exists. Have they lost their appetite for dividends? No. Now more than ever a steady income stream is important, which is why better-yielding stocks have outperformed others. Are they down on the U.S. economy, for more than a century the world’s best marketplace for growth and the road to wealth? If so where are prospects better?
Seldom does the market accommodate investors when a large majority is on one side. There are too many bears and among individual investors and too few are anticipating the peak in the Fed’s rate tightening cycle and better days ahead.
David Vomund is an Incline Village-based Independent Investment Advisor. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.
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