Key economic data remained strong in September with a number of key indicators coming in above expectations, namely: durable goods orders and jobless claims. This resulted in the FED increasing their average fed funds terminal rate to 4.6% at their September meeting with 6 out of 19 participants seeing rates going to 5%.
Yet some markets bell weathers see trouble on the horizon. FedEx slashed earnings forecasts. Apple reduced iPhone 14 production. Micron warned of tougher times ahead. Corporate earnings are expected to be up 8% in 2023 versus 2022. We remain skeptical of this given the macroeconomic backdrop and will be monitoring the earnings calendar carefully from mid-October onwards.
Markets appear to be oversold when measured by a number of technical and breadth indicators, but what we know from history is that even extremely oversold markets can continue to fall - September reminded us that we must remain open to a wide range of outcomes and continued volatility.
On the international front we had tremendous volatility in the UK market with the sterling crashing to its lowest ever recorded level (1.03). Where rampant inflation of close to 9% was met with a BOE pledge of
"Unlimited Bond Buying" to avert imminent gilts crash after an energy bill rescue plan was announced.
Election season is officially upon us, and while 2022 has been anything but normal, history shows that the second year of a Presidential Cycle is often one of the worst performing. This has held true so far this year, and while history also suggests that we could see some relief in the 6-12 months after the midterm elections, we continue to remain cautious and expect the volatility to continue.
Volatile times can upend even the best long term financial plans if investors let their emotions get the best of them. We remind clients that investing is the intersection of economics and psychology, and that during times of increased volatility, maintaining a long term perspective is critical.
Investing involves risks including possible loss of principal.
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