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October Market Insights

Stocks bounce back in October.

By Neil Gilfedder CFA®, Senior Vice President, Portfolio Management

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Last updated: November 4, 2022 |

Article published: November 3, 2022

October was a solid month for U.S. stocks, despite the continued question marks surrounding economic growth. Markets were supported by generally positive corporate earnings – with some notable tech exceptions – and stronger-than-expected GDP growth of 2.6% (annualized) for the third quarter.

Why it happened

The U.S. economic picture remained mixed. The job market remained strong but the most recent housing, manufacturing, and retail sales data disappointed. Overall, the outlook didn’t change much this month: September’s inflation data came in higher than anticipated; markets expect the Federal Reserve will continue to raise rates in the months ahead; and the potential impact of those higher rates on growth remains a major source of uncertainty. The U.S. economy (measured by Gross Domestic Product) grew in the third quarter, but forecasts for next year predict slower GDP growth. All that said, U.S. stocks still managed their second-best month of the year, speaking to the general unpredictability of markets.

With midterm elections on the horizon in the U.S., the month saw politics making an impact on global stock markets in different ways. A change in leadership was celebrated in the United Kingdom, while an unprecedented third term for China’s current regime weighed heavily on the country’s biggest technology companies.

What it means for you

October was a lesson in the importance of having a diversified portfolio – and why we always encourage you to keep a long-term perspective. Though the major U.S. stock indices were all positive, there was a noticeable difference in performance across different styles of companies. So-called “value” stocks (think Johnson & Johnson, Exxon Mobil, or Procter & Gamble) had a much stronger month than “growth” companies (like Amazon, Tesla, or Facebook). (You can read more about value and growth stocks here.)

In global markets, developed nations had their best month of the year while emerging market stocks lost ground. These shifts in market leadership can happen at any time and for a variety of reasons. That’s why we don’t play guessing games with the types of stocks we invest in; instead, we choose to always maintain a broadly diversified global allocation with exposures across different styles and regions. And as for timing, no one could have predicted that the Dow would have its best month since 1976, for example – which just shows that trying to time the markets never works.

Inflation, the Fed and volatility

In response to higher inflation, some silver linings emerged. For people in or approaching retirement, the Social Security Administration announced a cost-of-living increase of 8.7% starting in 2023, the highest such hike since 1981, while Medicare is lowering deductibles for Part B premiums. Meanwhile, the IRS has set higher tax brackets for next year, to adjust for inflation, and the standard deduction will increase to $27,700 for married couples filing jointly and to $13,850 for single taxpayers. The IRS often adjusts tax rates to account for inflation, but in most years it’s an incremental amount. This year, the shift represents a significant jump of 7%.

While some of the details have changed from month to month, the underlying causes of inflation remain the same: the war in Ukraine continues to push up energy and food costs; supply chain constraints still impair the manufacturing and distribution of the goods we buy; and employment and wage growth remains robust.

In response, the Fed raised its target interest rate six times so far in 2022, and the last four have been large hikes of 0.75%.

Stay focused on what you can control

We always end these messages by telling you to stay invested in a diversified portfolio, with a long-term focus. But we appreciate that advice may seem difficult to follow when there’s been a steady decline in asset values for close to a year. Still, while we don’t know how much longer this scenario could continue, we continue to stand behind this strategy. Remember, you never know when the market has reached its lows until long after they’ve passed.

What’s more, the uncertain conditions provide you with an opportunity to review the rest of your financial strategy with your planner. It’s a time to shore up your cash reserves and focus on saving for your long-term goals. And with year-end approaching, you can make charitable donations and gifts for the 2022 tax year, use your remaining Flexible Spending Account balances, update your insurance and estate plans, and review your long-term retirement goals.

As always, we’re here to help. Contact your planner to discuss your long-term integrated financial strategy.

And if you don’t have a planner, you can schedule a free, no-obligation consultation with a financial planner.

 

Neither Edelman Financial Engines nor its affiliates offer tax or legal advice. Interested parties are strongly encouraged to seek advice from qualified tax and/or legal experts regarding the best options for your particular circumstances.

Neither Financial Engines Advisors L.L.C. nor any of its advisors sell insurance products. Edelman Financial Engines affiliates may receive insurance-related compensation for the referral of insurance opportunities to third parties if individuals elect to purchase insurance through those third parties. You are encouraged to review this information with your insurance agent or broker to determine the best options for your particular circumstances.

This material was prepared for informational and/or educational purposes only.  Although the information has been gathered from sources believed to be reliable, we do not guarantee its accuracy or completeness.

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