In my September 2022 Monthly Outlook, I included this chart and highlighted my concern that we might retest the June low in stocks (3,636 on S&P 500). Well it turned out I was right as stocks fell hard and ended September at 3,585 on the S&P 500. Bonds didn’t fare any better in September as yields continued to increase, rising from 3.2% to 3.8% during the month. This is one of those times that being right stinks.
Because of my concerns going into September and how the financial markets were behaving, we did reduce risk across portfolios during the month. We raised more cash, and shifted both equity and fixed income (bond) investments into areas that are holding up best. While our portfolios did see declines, these declines were significantly less than what the markets experienced (stocks down 9%, bonds down 4%).
So where do we go from here? Well, I remain concerned about the market continuing to decline. October has traditionally proven to be a very volatile month in financial markets. My downside target for the S&P 500 is 3,200 or roughly 10% below where we are right now. I arrive at that level based on the confluence of support at 3,200 as can be seen in the chart below. The red line is a long term trend line from the market bottom way back in 2009, which was touched but not broken in March 2020. The green lines represent Fibonacci levels over that same time period. Fibonacci levels provide targets for resistance in an uptrend and support in a downtrend. That these 2 different analysis converge at 3,200 means we could see the market fall to that level, but that level will likely hold.
This doesn’t mean the markets can’t hold right where they are now, in fact the first trading day of October is seeing a nice rally in stocks. Stocks are very oversold right now so a rally is a real possibility. But I do think the probability is higher that October is a down month vs an up month. However, from there we have some seasonal trends in our favor.
Historically, November and December are 2 of the best months in the year in financial markets. Additionally, stocks tend to do well in mid-term election years from November to the following November. Over the last 10 mid-term election cycles (40 years), the S&P 500 has averaged a 21% increase from 10/31 of election year to 10/31 of the following year, with NO declines. Lastly, when I look at Presidential election cycles, Q4 of the 2nd year to Q2 of the 3rd year have had the largest gains and frequency of advances. (source: CFRA research)
So we continue to remain cautious and more defensively positioned but prepared to adjust as conditions dictate.
I hope you find this information helpful. Please share it with anyone you think would benefit from it.
October Calendar of Events (comments and additions for future months are always welcome)
- October is Breast Cancer Awareness and Domestic Violence Awareness month.
October 7th 6th anniversary of purchasing our office building – we’d love to have you come for a visit - 141 W Main Street Rockaway
October 10th Columbus Day
October 15th Medicare open enrollment thru December 7th - you can switch from original Medicare to Medicare Advantage, or vice versa. You can also switch from one Medicare Advantage plan to another, or from one Medicare Part D (prescription drug) plan to another, or drop your Medicare Part D coverage altogether. Please call us if you have any questions about your options.
October 28th National Chocolate Day – Now that’s a holiday I can get into
October 31st Halloween
Sources: CFRA Research, StockCharts.com
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