Noisy News

Telemus Weekly Market Review October 24th - October 28th, 2022

There was a lot of news this past week that influenced markets, creating a volatile yet positive week for stocks and bonds. The S&P 500 gained +4.0%, with the Bloomberg U.S. Aggregate index rising +1.7%.

The week started with Xi Jinping being appointed to his third term as China’s President. Chinese equity markets responded with a negative reaction on Monday as Hong Kong’s Hang Seng index dropped -6.4% with large Chinese technology names, such as Alibaba and Tencent, falling over 10%. As the week went on, third quarter corporate earnings reports accelerated with one-third of S&P 500 constituents reporting results. Results from Microsoft, Alphabet, Meta and Amazon all disappointed as there was a consistent message of expectations for slowing growth rates going forward. The lone standout among big technology companies was Apple, whose strong Mac sales more than offset slowing growth in its services business. A positive datapoint was Thursday’s Gross Domestic Product (GDP) reading, which showed the U.S. economy growing 2.6% during the third quarter. This was a stronger than expected outcome, although its release was overshadowed by corporate earnings. Another overlooked economic datapoint was the S&P CoreLogic Case-Shiller housing data which showed a sharp decline in home prices.

Over the coming weeks there will be several additional events that will influence market behavior. This coming week the Federal Reserve Open Market Committee meets to discuss a further hike to interest rates. Market expectations are for a three quarter of a percent increase in rates. As November sets in, October economic data such as industrial production and unemployment will flow in during the coming week. The following week will be headlined by the mid-term elections on November 8th. That will immediately be followed by October Consumer Price Index (CPI), which remains widely followed.

In the end, the collective of these added datapoints is unlikely to change the big picture influences on the market. These impacts are centered around the direction of inflation, what that means for interest rates, and the resulting impact on the economy. When I look back at past market environments it’s often one or two things that drove the market. As an example, in the fourth quarter of 2018 stocks at one point had dropped 19%. The drop was due to concerns that the Fed had tightened its policy too much and the economy was going to slow. Stock prices didn’t react to the mid-term elections or to falling oil prices, both of which caused headlines during this period. It really was about one dominant factor, and the rest was noise. Regardless of what market environment you look back on, the dominant influences all boil down to one or maybe two key causes. I don’t recall a scenario where a single ISM Manufacturing index or lighter than expected earnings report from a company drove a particular market environment. Thus, it’s the big picture that matters. In periods such as the one that we are in the midst of, it’s best to avoid being overwhelmed by the news flow. Rather its best to focus on whether any new information changes the direction or magnitude of what will ultimately be the dominant influence on that market.

On behalf of all of us at Telemus, we hope you and your families have a happy and safe Halloween.

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