GREAT SEASON PADRES!
The S&P 500 and US
Aggregate Bond Indexes fell
nearly 5% each in the third
quarter. YTD, the indexes are
down 24% and 15%
The Fed raised the federal
funds rate by 0.75%, bringing
it to a range of 3%-3.25%.
The consumer-price index
rose by 8.2% over the past 12
The U.S. economy added
263,000 new jobs in September, marking the 21st
straight monthly gain. The
unemployment rate was 3.5% at the end of the quarter.
MARKET STEERS INTO UNCHARTED WATERS
It was a disappointing third quarter for both stocks and bonds. The S&P 500 Index and the US Aggregate Bond Index each fell nearly 5% in Q3. For the first nine months of 2022 the indexes have declined about 24% and 15%, respectively. These are unchartered waters as both the stock and bond indexes experienced concurrent negative returns for three consecutive quarters. The last time this happened was 1931 during the Great Depression.
The stock market started the quarter with an unexpected rally lasting until mid-August, climbing 18% from its mid-June lows. With hopes of inflation being passed its peak, bond yields were on their way down in anticipation of the Fed slowing its hawkish
stance on interest-rate hikes. However, consumer prices were unexpectedly higher in August, restoring fears that inflation is still a prominent force in the economy. This led to the Fed announcing further rate hikes throughout 2022 and into 2023.
FED CONTINUES TO FIGHT INFLATION
Inflation continues to be the primary worry of investors and the Fed. Inflation peaked at 9.1% year-over-year in June followed by unchanged numbers in July. While it declined in August to a yearover- year rate of 8.3%, this was higher than expected, causing the Fed to stay aggressive in its efforts to curb rising prices. As expected, the Fed in September raised the federal funds rate by 0.75%, bringing it to a range of 3%-3.25%. The Fed’s aggressive stance continues to put downward pressure on both the stock and bond markets. Rising rates have resulted in an increase in bond yields across the yield curve. It has also resulted in an inverted yield curve, with short-term treasury yields higher than long-term yields.
THE SUN IS SHINING, BUT WE’VE PREPARED FOR RAIN
Factors such as inflation and an inverted yield curve raise investors’ concerns regarding a potential recession. Real gross domestic product (GDP) was -1.6% in Q1 and -0.6% in Q2. A frequently used rule of thumb is that two consecutive quarters of decline in GDP constitute a recession. Officially, it is the National Bureau of Economic Research’s Business Cycle Dating Committee that makes said declaration and they have not done so at this point in time, as they use GDP along with other factors, too. One of those factors is unemployment, and today’s unemployment rate is at a historically low rate of 3.5%.
Given the Fed’s current position on interest rates, we continue to reduce the duration and average maturity of portfolios by decreasing exposure to bond funds and adding individual short-term fixed-income positions using CD’s, treasuries, agencies, and municipal bonds. On the equity side, we continue to re-balance and tax-loss harvest. When doing so, we are increasing exposure to large-cap value and small-cap value positions.
WE ARE HERE FOR YOU
The Platt Wealth Management team is here for you to discuss any changes to your financial situation or investment objectives. We are always available to assist you with any financial matters of concern to you and look forward to continuing to serve as your partner along your financial journey.
Platt Wealth Management