Watch the CPK Market Action Report: November 2022
The Dow Jones Industrial slides lower on the last day of the month, but still posts its best monthly gain since 1976. Is the bottom in, or will inflation, the war, Fed action and other headwinds prove to be more than the market can handle?
Watch the Market Action Report now:
CPK Wealth Market Action Report
November 2022
INTRO TAG
The Dow Jones Industrial slides lower on the last day of the month, but still posts its best monthly gain since 1976. Is the bottom in, or will inflation, the war, Fed action and other headwinds prove to be more than the market can handle?
That action starts, NOW!
INDEX PERFORMANCE RECAP
Stocks offered up a much-needed rally for the month of October. The Dow Jones Industrial soared 13.04% higher and the S&P 500 posted a gain of 6.76%. The beaten down Nasdaq Composite seemed to struggle comparatively posting a positive return of just 2.32%.
EQUITY UPDATE
Stocks as a whole were able to take a nice break from the selloff we’ve been experiencing all year. The major catalysts behind all of the action was a sharp decline in the value of the US Dollar as well as some technical reasons. For now, stocks are bouncing higher in light of these technical levels. However, there really isn’t any evidence that a tradeable bottom is in for this market suggesting for some that the current rally could likely fizzle out at technical levels of resistance around 3910, 4,009 or 4,149 in the S&P 500.
BOND UPDATE
Bond yields have continued their trend higher. At month end, the 5yr was yielding 4.25% while the 10yr was at 4.05%. At the longer end of the curve, the 30yr closed the month at 4.12%.
It is highly expected that the Fed will raise rates another 75 basis points on November 2nd and either 50 or 75 basis points on December 14th. This will take the funds rate to 4.25-4.5%. At this point, data is suggesting the Fed may slow its pace significantly as inflation pressures ease.
As I write this, the 10s-2s spread currently sits at -47.8bps. This spread has remained consistently stable over the last several months and the message continues to be the same; An economic contraction, possibly a deep one, is coming.
COMMODITY UPDATE
The black gold spike 15% higher to start the month before pulling back a bit to close at $87.16. Looking ahead, WTI is still range bound right now with futures bookended by support at $78 and resistance at $93. And given pretty even supply and demand fundamentals right now, that range should hold until there is a broader shift in macroeconomics.
Copper was basically flat for the month closing out just above $3.40/oz. Fundamentally, copper remains range bound for now as peak hawkishness hopes and tight physical supplies help to offset recession worries. On the charts, copper futures are pinned between $3.30 and $3.55, but the longer-term trend is still bearish and a break to the downside is the risk to watch for.
After a quick pop higher at the start of the month, Gold closed slightly lower at $1643/oz. Bottom line for gold, the major bearish influences of a strengthening dollar and rising yields remain intact and gold futures are hovering just above the YTD lows near $1,629/oz. The path of least resistance remains lower for gold and other precious metals and that will remain the case until a real Fed pivot.
CURRENCY UPDATE
The U.S. dollar retraced an early 3% gain thanks to political progress in the U.K. to boost confidence in their fiscal situation. This also opened the door for a late month rally in equities. The Dollar closed out at $111.53.
Future movements in the dollar will once again be driven by central bank policy expectations, and it’ll take a less hawkish tone from the Fed (or a collapse in U.S. economic data) to push the dollar materially lower from here.
ECONOMIC UPDATE
On the inflation front the numbers aren’t “bad”, as they didn’t imply inflation is getting worse. At the same time, they’re not showing inflation is declining rapidly either. As such, we have clearly slowing growth amidst a buoyant inflation environment. That’s stagflation if it continues.
Bottom line, stocks have rallied on the hopes of smaller rate hikes on the horizon and resilient U.S. economic growth, and that will either be confirmed this week (and stocks can extend the rally) or contradicted (and if that happens, don’t be shocked by a quick 5% pullback).
The Fed meets on Nov 2nd to announce its next moves and while a hike of 50-75 basis points is already priced into the markets, the key will be what clues, if any, the Fed gives us about the December rate hike and if it signals that rate hike will be smaller, signaling a slight relaxation in the Fed’s hawkish intensity (but importantly, not representing a Fed pivot).
THE WRAP
While the recent bounce from October was much needed, I would not suggest to anyone we are off to the races for another long bull run. Companies are still adjusting their future earnings forecasts downward, the Fed has yet to show any signs of a dovish pivot and the economy is starting to slow.
However, we are closer to the end of the selloff than we are the beginning and eventually, we are going to begin investing the cash we have on the sidelines to capitalize on substantially lower entry points for a new uptrend. When will that be? I am not sure. However, markets have always rebounded from every great sell-off and recession and we don’t want to get caught flat footed and miss out on a great opportunity. I am hopeful we get some insight from the Fed’s November 2nd meeting that will provide us some clarity to build on.
CPK FOCUS
For the month of November, the cash allocation in our equity models remains at 40% due to the model’s more aggressive nature. Convenient, with Cash moving into the top-ranking position this month. Once again, I am proud to say that our approach has kept our performance ahead of all the major index’s year to date.
Our broad focus is now on Cash and Commodities with Domestic Equities coming in a close 3rd.
As you know, we already hold a 40% Cash position.
For Commodities, our focus is on Energy, Agriculture and Precious Metals.
In Domestic Equities, our focus is on Mid Cap Value, Mid Cap Blend and Small Cap Value with an emphasis on Energy, Consumer Non-Cyclical, Financials, Utilities & Industrial sectors.
CPK DISCLAIMER
As a reminder, my current allocation is not a recommendation. Regardless of what happens next, investors like you need to have a simple and yet solid financial plan that reduces RISKS, COSTS and TAXES while securing the necessary income you need to maintain your lifestyle throughout retirement.
If you don’t have a plan OR you’re not comfortable with the plan you have, call me today to get pointed in the right direction.
Before I close, I want to thank each of you for your inquiries and kind support towards me and my family as well as those who live throughout Southwest Florida ahead of and even after the devastating impact of hurricane Ian. While my family experienced minimal impact, that is not the case for many others. Thousands had significant damage or a total loss of their homes and businesses. Many of our beach communities are unrecognizable and will require years of hard work and investment to recover. Please continue to keep these people in your thoughts and prayers for the foreseeable future.
I’m Chad Kunc and that puts a wrap on the November 2022 Market Action Report. Thanks for joining me. It’s time for me to get back to the markets.
And that action starts, NOW!