Welcome to a very spooky edition of The Broadcast!
I hope you all had a wonderful Halloween! Unfortunately, the stock market did not offer any treats in October and posted its third consecutive monthly decline. The 49ers even dropped 3 games in a row after a 5-0 start. Boo, indeed.
October marked a turning point for Emerging Markets and Small Cap stocks which followed the broad based bond market into negative territory for the year.
The good news is that Large US (particularly Nasdaq based tech stocks) and Developed International stocks are still solidly in positive territory for the year. Additionally, short term bonds are still holding up better than the longer dated broad based index.
Another source of good news has been our economic growth, which continues to surprise to the upside. Our 3rd quarter GDP grew at an annualized rate of 4.9%!
Yet another positive has been 3rd quarter corporate earnings reports. Despite a rough few months in the stock market, earnings have been relatively strong with an above average number of companies posting positive earnings surprises.
In a normal environment, the combination of 5% annual GDP growth and above average earnings surprises would very likely coincide with a bullish stock market. Unfortunately, we are not in a normal environment.
Our primary worry continues to be the dreaded "I" word (Inflation) and though the Fed continued their recent pause on rate hikes they are still speaking in cautionary tones. As such, investors are again worried that additional interest rate increases are just around the corner.
Additionally, while earnings have been positive net profit margins just experienced a decline for the 7th consecutive quarter.
In November, we will learn more about the strength of corporate earnings as the remaining half of companies release their reports. We should get more insight from the Fed on inflation and rates too.
Next on my radar for the remainder of the year is the U.S. consumer. As holiday shopping rapidly approaches, we should learn just how strong the U.S. economy is. It will be interesting to see just how much spending takes place to close the year. If too much, it could add to inflation. While too little may be a sign of a weakening economy.
For some reason, Goldilocks keeps coming to mind. Did the Fed raise rates too much or not enough? Are corporate earnings strong enough or weakening too quickly? Will we spend too much or too little?
I am fairly optimistic that we are either in the "just right" range or very close to it. Despite the aforementioned challenges, I believe that our economy is still headed in the right direction and that the recent stock market pullback is normal.
In the meantime, I'll be paying close attention to inflation, earnings, spending and the rest. As always, stay tuned.
Thanks for reading this month's Broadcast. If you have any questions or if there are any topics you'd like me to cover in future editions please let me know.
Until next time, take good care!
Steve