Rising recession fears and uncertainty in the bond and currency markets sent stocks to new 2022 lows last week.
The Standard & Poor’s 500 slumped 2.91%, while the Dow Jones Industrial Average declined 2.92%. The Nasdaq Composite index fell 2.69%. All US indexes ended the week at new lows for the year.
The MSCI EAFE index, which tracks developed overseas stock markets, lost 1.94%.1,2,3
For the end of 3Q, here are some highlights of the data I'm seeing:
As you can see above, Value stocks continue to enjoy a double-digit advantage over Growth, with Large-cap Value the least-bad segment. As I have been saying since February, this is where you should be overweight in your stock portfolio.
As we have seen all year, Latin America continues to be the lone region of the globe with stocks up:
Even the Energy sector was down in September and for 3Q it was surpassed by Consumer Cyclicals. YTD Energy is still #1 although Technology remains the best performing sector over the last 3, 5 (and 10) year periods.
A few interesting notes - All interest rates are up for the month and the year, with the 30-yr mortgage and CCC ("junk") bonds up the most. Recession fears mean the market thinks bond defaults are becoming more likely and this effects the lower rated bonds the most. On the other hand, Consumer Sentiment is up, probably driven by the fall in gas prices, which have been steady under $4/gal. on the national average for a month now.
A Tumultuous Week
U.S. stocks were under pressure all week due to recession concerns and unsettled trading in the bond and currency markets. This stress followed economic steps out of the U.K. During the previous week, the Bank of England (BOE) raised interest rates, and its prime minister announced unfunded tax cuts that the markets interpreted as inflationary.
U.S. bond yields rose early last week, sending stocks lower until Wednesday’s rally following news that the BOE would buy U.K. government bonds. U.S. stocks resumed their descent the following two days to close out a disappointing week, month, and third quarter.
The Bank of England Acts
Global bond and currency markets have been volatile recently due to global central bankers raising interest rates to combat inflation. Developments in the U.K. took center stage last week when the BOE announced it would be buying long-dated U.K. government bonds. Upending the financial markets was the previous week’s announcement of tax cuts by the country’s new prime minister, a step many investors viewed as counterproductive to the BOE’s inflation-fighting efforts. Fortunately, the Tory government reversed course over the weekend and canceled the planned tax cut.
The BOE’s decision to begin temporary purchases of government bonds was well-received by capital markets, sending U.K. bond yields lower and boosting U.K. stock prices in the immediate aftermath.
This Week: Key Economic Data
Monday: Institute for Supply Management (ISM) Manufacturing Index.
Tuesday: Factory Orders. Job Openings and Labor Turnover Survey (JOLTS).
Wednesday: Automated Data Processing (ADP) Employment Report. Institute for Supply Management (ISM) Services Index.
Thursday: Jobless Claims.
Source: Econoday, September 30, 2022
This Week: Companies Reporting Earnings
Wednesday: Lamb Weston (LW).
Thursday: Constellation Brands, Inc. (STZ), McCormick & Company, Inc. (MKC), Conagra Brands (CAG).
Source: Zacks, September 30, 2022
“The trust of the innocent is the liar’s most useful tool.”
– Stephen King
With Shared Custody, Taxes Can Get Complicated
If you have a legal agreement with your child’s other parent regarding custody, you likely have questions about claiming the child on your tax return and what credits (if any) for which you are eligible.
It may help if you research the Child Tax Credit as well. The parent who claimed the Child Tax Credit for a qualifying child the previous year may have received the advance child tax credit payments the following year. That means that “an eligible parent who did not receive advance payments for a qualifying child will be able to claim the full amount of the child tax credit for that child on a 2022 tax return even if the other parent received advance child tax credit payments.”
* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.
Tip adapted from IRS.gov4
Sneak in More Veggies with Mashed Cauliflower
Mashed potatoes are a classic side at any meal, but they can be calorie-dense and don’t provide as much nutritional benefit as other veggies. If you want a tasty and easy way to incorporate more veggies into your meals this year, try this simple mashed cauliflower recipe:
Tip adapted from Downshiftology5
Seven people stand in a square room which measures 30' x 30'. Each one can see the entire room and everyone in it without making any physical movement (aside from eye movement). Where inside this room can you place an apple so that all but one person can see it?
Last week’s riddle: Alexandra’s mom had four children. The first one was named May, the second was named June, and the third was named August. What was the fourth child's name? Riddle Answer: Alexandra
Kirkjufell Mountain, Reykjavík, Iceland
Footnotes and Sources
2. The Wall Street Journal, September 30, 2022
3. The Wall Street Journal, September 30, 2022
4. IRS.gov, February 23, 2022
5. Downshiftology.com, June 1, 2022
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Weekly Market Insights: U.S. and U.K. See Financial Turbulence. Plus, initial look at 3Q results
October 03, 2022