Finally, some good news to share! The S&P 500 index snapped its two-month losing streak and posted the best October gain since 2011 with the index finishing +8.1%. While we still have a long way to go before truly celebrating (still down -18% year-to-date), October gains were all the more impressive, given the fact that the S&P 500 reached a fresh new low on October 12!
The main catalyst for last month’s reversal was renewed optimism that the Federal Reserve may actually pause the aggressive interest rate hikes after the December 15th meeting.
While this is not anywhere close to a guarantee, it is an encouraging sign and another reason to continue to look at the last quarter of the year with enthusiasm.
Additionally, mid-term elections are Tuesday. An interesting statistic that I saw last week came from S&P Global index officials where they noted that whenever mid-term election years coincide with a bear market, the S&P 500 has recorded its ultimate bottom in October four of five times. Keep in mind the sample size is rather small, but the odds are in our favor. Additionally, regardless of the election outcome, the S&P 500 has gained an average of 6.2% through the end of the year as election concludes and the Santa Clause rally takes hold.
Another positive surprise has been 3rd quarter earnings and how they are currently surpassing analyst estimates with over 68% of companies topping projections by an average of 3.4%. With companies continuing to show strength in the face of adversity supports the idea that things aren’t as bad as they appear.
Lastly, the 4th quarter is seasonally a very strong quarter. Historically speaking, November is the best performance month on average while December is the third best. If we can parlay those historical trends with a Federal Reserve pause after the December 15th meeting, we could see markets explode to the upside as the mountain of institutional cash on the sideline starts to re-enter the market.
2022 has no doubt been unpleasant. Equities closed at all-time highs in 2021, only to gradually bleed-out in 2022. The first half of this year was the worst start ever for bonds and the third worst for stocks. Retail sentiment is worse now than during the Financial Crisis of 2008. So where do we go from here? I am not exactly sure. But the stock market is forward looking and doesn’t care about the past. At some point soon, the road in front of us will start looking very attractive and this too, will be in the rear-view mirror.