2022 Q3 Midpoint

I am writing this as close to the midpoint of the quarter as I could manage (I missed the true midpoint by a couple of days). This week the markets, as measured by the S&P 500 index, rose to cross a psychological threshold. As of this writing, the markets were down ONLY 10.12% for the year. To put that into perspective, the bottom was on June 23, closing at -23.07%.

So what’s going on? In short, this market is defined by expectations of future Fed action. Specifically, the markets expected, and were, therefore, pricing in, four consecutive Fed rate hikes of 0.75%. On July 27 the Fed announced they were going to raise rates by 0.75% (the second consecutive 0.75% hike) and set future interest rate targets that indicated they only intended additional rate hikes of 0.50% through year-end. 

That bit of good news, that interest rates would not be going up as much as widely anticipated, was all the impetus the markets needed to go on a multi-week uptrend. 

Where does this leave us? I don’t know where the markets go from here. My crystal ball is, once again, cloudy. So who is right? Is the market right in anticipating that inflation has been, if not tamed, at least peaked? Or has the market gotten ahead of itself? I don’t know. There is a bit of evidence for both sides of the argument. I do know that once again I find myself reading a fresh chapter of an old tome called “don’t fight the Fed”. 

For the time being, I am using the recent run-up to honor the price point of -10% that I committed to months ago. For any cash that I have let accumulate or stand on the sidelines, I am now redeploying that capital. 

References:

Basic info on the July 27 Fed rate hike: https://www.cnbc.com/2022/07/27/fed-decision-july-2022-.html
More commentary on 50bps vs 75bps: https://www.reuters.com/markets/us/feds-daly-50-bps-or-75-bps-sept-rate-hike-reasonable-2022-08-18/
The July 2022 jobs report was good! https://www.cnbc.com/2022/08/05/jobs-report-july-2022-528000.html
July 2022 consumer confidence report ticked down. https://www.conference-board.org/topics/consumer-confidence
August 2022 article about layoffs in the works or planned in 1 out of 2 employers surveyed. https://www.bloomberg.com/news/articles/2022-08-18/layoffs-are-planned-at-half-of-all-companies-pwc-survey-shows
August 2022 article questioning if the market has gotten out of sync with the Fed.  https://www.wsj.com/articles/in-high-stakes-inflation-game-wall-street-bets-the-fed-is-bluffing-11660830685?reflink=integratedwebview_share