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Markets in November 2022 Thumbnail

Markets in November 2022

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Investment Insights


  • Markets rebounded further in November with the S&P 500 up 5.6%. International markets which have lagged the U.S. rose even further with the EAFE advancing 11.3% and Emerging Markets up 14.9%. Even with the big rallies in October and November, the S&P 500 is still down 13.1% YTD and the NASDAQ down 26.1%.
  • The rally can be attributed to lower inflation data as well as commentary that the Fed may begin to slow the pace of rate hikes beginning in December. This has also led to lower interest rates with the 10-year Treasury dropping from roughly 4.2% to 3.6%. The dollar has also retreated considerably.
  • Midterm elections didn’t quite see the red wave that many expected. However, with Republicans picking up the majority in the House we now have a mixed government. This should limit any large policy changes or fiscal implications.
  • CPI came in lower than expected up 7.7% year over year. Core CPI increased 6.3% year over year. Soaring rents accounted for more than half of the increase. Food prices continue their rise, up 0.6% since last month.
  • PPI came in at 8% vs 8.3% expected.
  • The Fed raised rates by another 75 basis points to 3.75% - 4%. They also indicated that rates may end up higher than previously expected, but that it may be appropriate to begin slowing the pace of increases as early as the next meeting in December. Fed Chair Jerome Powell reiterated that the Fed will likely begin to moderate the pace of hikes in December during a speech later in the month.
  • 261k jobs were added in October. While still a strong number, it’s the smallest monthly gain since December 2021. The unemployment rate edged up to 3.7% from 3.5%. September’s reading was revised to 315k jobs added versus the 263k previously reported.
  • -Retail sales rose 1.3% in October beating expectations of 1%.
  • -The 2 year Treasury moved higher than the 10 year Treasury earlier in the year. Although this is widely considered a precursor to a recession, it has not been a reliable predictor historically. The 3-month T-Bill rate above the 10-year Treasury, however, has been much more dependable. As of this writing, the 3mo/10yr is inverted by 80 basis points, with the 3 month at 4.40% and the 10-year at 3.6%.

Why It Could Keep Going Higher


  • The primary driver of U.S. economic growth is the U.S consumer and Americans still have excess savings they’re able to draw on.
  • Employment is still strong and that has always begun to slip before a recession.
  • Inflation has likely peaked and if the Fed can feel confident that it will continue its descent, they may begin to pause rate hikes sooner than expected.
  • The S&P 500 usually bottoms before economic data bottoms.

Biggest Risk


  • Inflation and the Fed’s response to get it under control are still the biggest risks the economy faces currently. Fed policy impacts the economy with a significant lag so it is hard to determine what the future effects will be from the current rate hikes, let alone future rate hikes. Most foreign central banks are tightening policy at the same time, which may further amplify a global contraction. While a strong US dollar certainly does not help the situation overseas.
  • Earnings have begun to slow as profit margins come under pressure. With the lag in monetary policy impacting the economy, profits may fall further over the upcoming quarters.
  • Further Geopolitical tensions.
  • The Unknown.

Economic Data

  • CPI was up 7.7% in October.
  • PPI was up 8% in October.
  • 261k jobs were added in October. While still a strong number, it’s the smallest monthly gain since December 2021. The unemployment rate edged up to 3.7% from 3.5%. September’s reading was revised to 315k jobs added versus the 263k previously reported.
  • Retail sales rose 1.3% in October beating expectations of 1%.
  • ISM Manufacturing PMI slipped for the sixth straight month to 49, marking the first time it fell into contraction territory (below 50) since May 2020.  
  • S&P 500 companies with less than 25% of sales outside of the U.S. have had 5.1% earnings growth, while those with over 50% have seen earnings decline 7.5%.
  • Q4 earnings are now projected to drop .39% year over year, down from +6% in August.
  • Bank of England raised rates 75 basis points.
  • U.K. inflation rose 11.1% year over year.


What We Are Doing


We have continued to maintain a well-diversified allocation. Our tilts towards defensive sectors such as healthcare, consumer staples, as well as low-duration fixed income have helped us limit some of the damage and outperform our benchmarks. We believe that the rally in October and November may be overdone and reduced risk slightly in November. For the time being we believe it is best to maintain our diversified yet slightly more protective tilts as we continue to monitor the markets closely.