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  • Scott Poore, AIF, AWMA, APMA

Can Equities Continue The Rally?


All major equity sectors except for one were higher last week. The most significant takeaway from last week was the 3rd quarter GDP report that showed the economy

grew 2.6%, which was above expectations and signified that the “technical” recession from the 1st & 2nd quarters is now over. Corporate earnings were solid overall last week, except for Technology and Communications Services. This helped lift Cyclicals (Basic Materials, Financials, & Real Estate) and Defensives (Utilities, Consumer Defensives, & Healthcare) last week.


Inflation appears to have peaked and another sign of this is the GDP Price Index that was released last week.

The GDP Price Index measures the price of goods and services included in the GDP measurement. The Index declined from +9.1% in Q2 to +4.1% in Q3. That doesn’t mean that inflation is headed back to normal just yet, but it likely means the peak has been reached. In addition, gas prices have dropped 5% over the last 2 and a half weeks. The Baltic Dry Index, a measure of shipping costs, has declined 71% since peaking in October of 2021.


All eyes will be on the Fed this week, as futures show an 84% probability of a 75 basis point hike on Wednesday.

However, the market will be parsing Powell’s language on Wednesday. If he forcefully pushes back on recent dovish statements, markets will react poorly. If not, higher equity prices could be in our future. The Mid-term Election boost equities typically see, plus November being the 3rd strongest month for equity inflows for mutual funds and ETFs, means the rally could sustain. What is of concern going into next year is the potential for a "double-dip" recession. The inversion of the 10-year Treasury Yield and the 3-month T-Bill Yield has historically pointed to recession. On average, the inversion of these two yields has been 14 months prior to a recession beginning, with the longest lead time being 23 months prior to the 2008 Recession.


 

Disclosures


The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.


Forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.


Any market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.


Past Performance does not guarantee future results.




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