Welcome to the weekly market update from Signature Wealth Management. I’m Brian Ransom, Research Director from Signature Wealth and here’s what happened in the market this week.
The secular downtrend in the markets continue over the last two weeks. We did get a nice little relief rally for the month of October. But the Federal Reserve press conference earlier this week quickly popped that bubble.
In the news this week, payrolls grew by 261,000 in October with the unemployment rate ticking up slightly to 3.7%. Hedge fund tech giant, Tiger Global halted new investments into Chinese equities. And the Federal Reserve raised interest rates by 75 basis points, informing the market that rates will likely be higher for longer.
Despite the market weakness, the Federal Reserve meeting on Wednesday was not all bad news. Embedded in the press release was the first indication that the FOMC is thinking about thinking about pivoting based on cumulative tightening, lags in monetary policy, and future economic developments. This notion was received positively by the market for about 5 minutes before Chairman Powell indicated that there was no pivot.
The end result of the meeting was a dramatic change in expectations for the terminal rate endpoint. The terminal rate endpoint is the peak rate that the Fed reaches before pivoting from tight policy to loose policy. The expectations for that terminal rate quickly shifted yesterday from around 5% to nearly 6%. These expectations are wildly volatile and not accurate in the slightest. But the sentiment shift was dramatic.
Of course, the end game for the Fed is to push down the rate of inflation shown in purple by reducing the amount of money supply in the economy, shown in blue. As highlighted a couple of weeks ago, there is typically a 6 month to 2-year lag between the money supply and the rate of inflation. So hopefully we will get a reprieve from high inflation sometime soon.
However, utilizing the Inflation Nowcast tool from the Cleveland Fed, it doesn’t look like we’re going to get that reprieve for the month of October. Currently the Nowcast tool is expecting the inflation reading to be around .8% month-over-month, which is a fairly high inflation reading. If we were in a disinflationary environment, that redline would be down here.
Ultimately, this means the year-over-year reading will likely stay stubbornly around 8%.
So to summarize, Chairman Powell indicated that the terminal rate is likely going to be higher than expected and they will hold it there for longer. Probably somewhere around here where it will stay until this guy seriously starts to budge. Which means, expect higher rates for longer.
For more information on this topic or a variety of other topics including market updates, financial planning, and wealth management please visit our vlog at signaturewmg.com/vlog. If you like our content, feel free to share it with friends and family. And don’t forget to smash that subscribe button!
1.FactSet Research Systems. (n.d.). S&P 500 (Interactive Charts). Retrieved November 4, 2022, from FactSet Database.
2.Federal Reserve Press Release. Federal Reserve System, Board of Governors. Released November 2, 2022 from https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm
3.FactSet Research Systems. (n.d.). Policy Rate Tracker(Markts). Retrieved November 4, 2022, from FactSet Database.
4.FactSet Research Systems. (n.d.). M2 Money Supply & Total CPI YoY % (Interactive Charts). Retrieved November 4, 2022, from FactSet Database.
5.Federal Reserve Bank of Cleveland. Inflation Nowcasting. Monthly (month-over-month). Retrieved November 4, 2022 from https://www.clevelandfed.org/indicators-and-data/inflation-nowcasting
6.Federal Reserve Bank of Cleveland. Inflation Nowcasting. Monthly (year-over-year). Retrieved November 4, 2022 from https://www.clevelandfed.org/indicators-and-data/inflation-nowcasting
7.FactSet Research Systems. (n.d.). Fed Funds Target Rate & Total CPI YoY % (Interactive Charts). Retrieved November 4, 2022, from FactSet Database.
Signature Wealth Management Group is registered as an investment adviser with the SEC. Signature Wealth only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements.
Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change.
Information contained herein does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.
Past performance does not guarantee future results. Consult your financial professional before making any investment decision.
The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them. Changes in the CPI are used to assess price changes associated with the cost of living.
Forward-looking statements are not guarantees, and they involve risks, uncertainties and assumptions. The use of words such as “will”, “may”, “could”, “should”, and “would”, as well as any other statement that necessarily depends on future events, are intended to identify forward-looking statements.
Information is not an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein.
The S&P U.S. Style Indices measure the performance of U.S. equities fully or partially categorized as either growth or value stocks, as determined by Style Scores for each security. The Style series is weighted by float-adjusted market capitalization (FMC), and the Pure Style index series is weighted by Style Score subject to the rules described in Index Construction.
All information presented prior to an index’s Launch Date is hypothetical (back-tested), not actual performance. The Index returns shown do not represent the results of actual trading of investable assets/securities. S&P Dow Jones Indices LLC maintains the Index and calculates the Index levels and performance shown or discussed, but does not manage actual assets. Please refer to the methodology paper for the Index, available at www.spdji.com for more details about the index, including the manner in which it is rebalanced, the timing of such rebalancing, criteria for additions and deletions, as well as all index calculations.