After a trying month in September, investors’ risk appetite strengthened in October, with equity markets in large part beginning the 4th quarter with a sharp rebound. Does this herald a genuine wind of change in the face of a cycle of rate hikes that appears to be nearing an end? Or does the persistently high volatility still call for some caution?
On the inflation front, there are some encouraging trends in the near term as the situation in global supply chains continues to improve. However, there has been little progress with respect to the underlying measures at the heart of central bank concerns.
As for the labour market, signs of cooling are beginning to emerge, which should ultimately help reduce underlying inflationary pressures. There is still a long way to go, and monthly figures remain very volatile, but the drop in job openings is most certainly a step in the right direction.
History has a way of repeating itself and history might be about to deliver a welcome relief from the equity market turmoil in the form of a turning point; in what, until now, has been a one-sided slide. In the U.S., eight of the last thirteen bear markets over the last 72 years (defined as a 20% decline in the S&P 500 excluding the impact of dividends) hit their low in October. Also could the U.S. Mid Term Election play a role? The “Midterm Miracle” often provides a much needed lift to markets.
At some point investors will step forward to take advantage of the lows, but markets will likely continue to be volatile over the next few months. The cause of the recovery cannot be predicted and may not be particularly evident until after the fact, but it will occur. Bull markets begin when investors become increasingly forward looking. With history as a guide, the S&P 500 (and hopefully all stock markets will join into the recovery) may well bounce off a bottom set in October before staging a sustained rally in early 2023.
Do yourself a favour and please take 15 minutes out of your day to read my monthly outlook as there are some glaring data points, events happening and signals to help give investors some much welcomed relief moving forward towards the end of the year and into the new year.