November 2022 Financial Market Update
November market update: Stock indexes rise, market sentiment improves
Market sentiment improved during October, as a more positive tone for U.S. equity markets returned versus the previous two months. Tallying the month of October, the S&P 500 tacked on 7.99%[i], the Nasdaq 100 added 3.96%[ii], and the Dow Jones Industrial Average rose by a whopping 13.95%[iii].
Overall, October featured hotter-than-expected inflation data[iv], mixed earnings results, and higher equity index pricing, with notable strength in industrial sectors. In particular, hopes that the Federal Reserve would slow the pace of rate hikes played a key role in market sentiment for the month.
Earnings Season Unfolds
Earnings results for the third quarter have been mixed thus far, with tech companies having softer[v] earnings results than their industrial company counterparts.[vi]
There have been surprises, both negative and positive. Amazon missed analyst estimates for the third quarter and offered weak guidance[vii] for the fourth quarter. Upon the announcement last week, Amazon stock was punished in after-hours trading. However, as markets reversed the next day with resilience, Amazon clawed back at some of its losses from the previous day.
In addition, earnings results have been strong in the energy sector[viii] for the third quarter, with Shell Plc’s quarterly profits more than doubling. As a result, there is now a planned dividend hike[ix] in the cards for shareholders.
Earnings season will continue into November.
Bond Yields Firm
Government bond yields rose for the third straight month in October. 2 and 10 year note yields remain inverted, with the 10-year note yielding 4.076%[x] and the 2-year yielding 4.491%[xi] to close out October.
It is worth noting that government bond yields closed off their highs reached earlier in October, with the 10-year yield trading above 4.25% and the 2-year yield trading north of 4.6% earlier in the month.
Strong Labor Market
The U.S. jobs picture remained strong in October, with the most recent September data showing an increase of 263,000 jobs[xii] and the unemployment rate falling to 3.5%.
The 263,000 jobs created were just short of Dow Jones estimates of 275,000 jobs. However, the unemployment rate of 3.5% was better than the estimates of 3.7%, helping to leave the door open for future Fed rate hikes.
The labor force participation rate[xiii] edged lower to 62.3%, and the size of the labor force decreased by 57,000.
Overview and Outlook
The overall market sentiment shifted from extreme bearishness to a more positive slant for equities in October. There is an element of hope present in the market at this moment, with many hoping the Fed will slow its tightening or even pivot and begin cutting rates.
The optimism and bullish seasonals could provide a supportive backdrop going into the end of the year. However, inflation must cool down before the Fed can ultimately wrap up its tightening operations. We get our next look at consumer inflation via the Consumer Price Index (CPI) on Thursday, November 10th, eight days after the November Fed meeting.
Historically, November and December are a strong time of year[xiv] for U.S. equities. After October’s strong display for U.S. stock indexes, the November 2nd Fed meeting (and resulting outlook) could be critical drivers heading into the end of the year.
According to data[xv] from CFRA Research, the S&P 500 has risen in 60% of the Octobers, 66% of the Novembers, and 77% of the Decembers since 1945. Many market bulls are feeling enthusiastic about the next two months.
An Important Reminder
While investors may have been cheering over the last couple of weeks in October, it is wise to remain grounded and remember the long-term strategy. Sticking to the plan regardless of overall market sentiment is historically prudent. Remembering this during times of market upturns is equally as critical as remaining resolved during market downturns.
Emerald Advisors is always here to answer any questions you may have. Feel free to reach out to us anytime.
[i] (2022, October 31). Tradingview.com. S&P 500 Index. [Online] Available at: TradingView Chart — TradingView
[ii] (2022, October 31). Tradingview.com. Nasdaq 100 Index. [Online] Available at: TradingView Chart — TradingView
[iii] (2022, October 31). Tradingview.com. Dow Jones Industrial Average Index. [Online] Available at: TradingView Chart — TradingView
[iv] Iacurci, G. (2022, October 14). Cnbc.com. Here’s the inflation breakdown for September 2022 – in one chart. [Online] Available at: Here’s the inflation breakdown for September 2022 — in one chart (cnbc.com)
[v] Novet, J. (2022, October 28). Cnbc.com. Big Tech falters on dreary earnings and forecasts for Q4 – Meta has worst week ever, Amazon tumbles 13%. [Online] Available at: Big Tech falters on Q3 2022 results as Meta has worst week ever (cnbc.com)
[vi] Anwar, H. (2022, October 28). Investing.com. Honeywell Shows Remarkable Strength As Industrial Economy Flexes Muscle. [Online] Available at: Honeywell Shows Remarkable Strength As Industrial Economy Flexes Muscle | Investing.com
[vii] Palmer, A. (2022, October 27). Cnbc.com. Amazon stock sinks 13% on weak fourth-quarter guidance. [Online] Available at: Amazon (AMZN) earnings Q3 2022 (cnbc.com)
[viii] Navellier, L. (2022, October 30). Investorplace.com. Energy Companies Report Blowout Earnings. [Online] Available at: Energy Companies Report Blowout Earnings | InvestorPlace
[ix] Amaro, S. & Meredith, S. (2022, October 27). Cnbc.com. Oil giant Shell reveals plans to hike dividend as quarterly profits more than double. [Online] Available at: Oil giant Shell reveals plans to hike dividend as quarterly double (cnbc.com)
[x] (2022, October 31). Tradingview.com. CBOE 10 YR Treasury Note Yield. [Online] Available at: TradingView Chart — TradingView
[xi] (2022, October 31). Tradingview.com. US Government Bonds 2 YR Yield. [Online] Available at: TradingView Chart — TradingView
[xii] Cox, J. (2022, October 7). Cnbc.com. Unemployment rate falls to 3.5% in September, payrolls rise by 263,000 as job market stays strong. [Online] Available at: Jobs report September 2022: (cnbc.com)
[xiii] Tuzemen, D. (2022, October 21). Kansascityfed.org. Labor Market May Remain Tight until Labor Demand Cools Further. [Online] Available at: Labor Market May Remain Tight until Labor Demand Cools Further – Federal Reserve Bank of Kansas City (kansascityfed.org)
[xiv] Cingari, P. (2022, September 2). Capital.com. Stock market seasonal trends: When is the best and worst time to invest in stocks? [Online] Available at: Stock market seasonal trends: When is the best and worst time to invest in stocks? (capital.com)
[xv] Mitra, M. (2022, September 30). Money.com. Will stocks Rally to Close out 2022? Here’s What History Tells Us. [Online] Available at: Stock Market Rally? Stocks Usually Rise at End of the Year | Money
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