by Richard Cull
October 2022 Market Recap & Commentary
The month of October saw the very welcome return of positive numbers for the major indexes. Six of the previous nine months of 2022 were negative and midway through the month it seemed October would be the 7th. Over the last two weeks however a couple of factors turned the sentiment and led to sharp rallies.
The three major themes currently behind the markets continue to be 1) inflation, 2) a tightening Fed and 3) a potential recession.
But two lesser factors were behind the violent reversal. The first was the reporting of third quarter earnings which thus far are holding up better than expected. There have been several noticeable misses (including Amazon & Google, etc.) and cautious guidance (Fed Ex & Walmart, etc.) but overall, the earnings are not as bad as feared.
The other factor is a belief that the Federal Reserve will slow their pace of rate hikes as soon as the December meeting. Investors are almost certain of a 75 basis point hike at the November 2nd meeting but feel the Fed may “PAUSE” after to analyze the cumulative hikes to date. Remember back in July the markets rallied as it anticipated the Fed “PIVOT” from rate hikes to rate cuts only to have several fed governors explicitly squash that scenario. Economist will most definitely be looking for clues in Chairman Powell's post meeting comments on November 2nd.
The combination of these two factors plus the still strong job market leads some to believe they Fed may actually pull off the Goldilocks scenario of taming inflation without triggering a recession… a so-called “Soft Landing.”
In reality 1) it is too soon in the monetary policy process and 2) the Federal Reserves has good intentions but does not have a good track record in preventing economic recessions. In spite of these challenges, consumers continue to have jobs and spend money, which as long as it continues, will stave off a recession.
The Risk Number is at the heart of a sophisticated set of tools to precisely measure the appetite and capacity for risk that each client has, and demonstrate their alignment with the portfolios built for them. The following graphic shows the risk of various asset classes as measured on a scale of 1-99 (1 being the most conservative and 99 being the most aggressive) as of the date above.
We start with a Risk Number, a measurable way to pinpoint how much risk you want, need, and already have. Then, your wealth advisor will optimally allocate our investments to help you reach your financial goals. Along the way, you will receive transparency of information, seamless proactive service and the trust and accountability you need to stay on track. All of this will lead to your personal comprehensive investment strategy that is powerful, disciplined, responsive.
Centric’s Market Assumption Disclosures: This information is not intended as a recommendation to invest in any particular asset class or strategy or product or as a promise of future performance. Note that these asset class assumptions are passive, and do not consider the impact of active management. All estimates in this document are in US dollar terms unless noted otherwise. Given the complex risk-reward trade-offs involved, we advise clients to rely on their own judgment as well as quantitative optimization approaches in setting strategic allocations to all the asset classes and strategies. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Assumptions, opinions and estimates are provided for illustrative purposes only. They should not be relied upon as recommendations to buy or sell securities. Forecasts of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. If the reader chooses to rely on the information, it is at its own risk. This material has been prepared for information purposes only and is not intended to provide, and should not be relied on for, accounting, legal, or tax advice. The outputs of the assumptions are provided for illustration purposes only and are subject to significant limitations. “Expected” return estimates are subject to uncertainty and error. Expected returns for each asset class can be conditional on economic scenarios; in the event a particular scenario comes to pass, actual returns could be significantly higher or lower than forecasted. Because of the inherent limitations of all models, potential investors should not rely exclusively on the model when making an investment decision. The model cannot account for the impact that economic, market, and other factors may have on the implementation and ongoing management of an actual investment portfolio. Unlike actual portfolio outcomes, the model outcomes do not reflect actual trading, liquidity constraints, fees, expenses, taxes and other factors that could impact future returns. Asset allocation/diversification does not guarantee investment returns and does not eliminate the risk of loss.
Index Disclosures: Index returns are for illustrative purposes only and do not represent any actual fund performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indices are unmanaged and one cannot invest directly in an index.
Riskalyze Disclosure: The Risk Number® is a proprietary scaled index developed by Riskalyze to reflect risk for both advisors and their clients. The Risk Number is at the heart of a sophisticated set of tools to precisely measure the appetite and capacity for risk that each client has, and demonstrate their alignment with the portfolios built for them.
Shaped like a speed limit sign, the Risk Number gives advisors and investors a common language to use when setting expectations, recognizing risk and making portfolio selections. Just like driving faster increases hazards, a higher Risk Number equates with higher levels of risk.
General disclosure: This material is intended for information purposes only, and does not constitute investment advice, a recommendation or an offer or solicitation to purchase or sell any securities to any person in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. Reliance upon information in this material is at the sole discretion of the reader. Investing involves risks.
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