Play Ball
“Every day is a new opportunity. You can build on yesterday’s success or put its failures behind you and start over again. That’s the way life is, with a new game every day, and that’s the way baseball is.” ~ Bob Feller, American baseball pitcher.
Question: As we are solidly in the third quarter of the year, what are your thoughts about potential market moving events?
Answer: As this is being written, the first game of the World Series will take place tonight. Although my favorite team is not playing, there’s still excitement in the air prompting some baseball analogies. The third quarter of 2022 feels a bit like we’ve been at bat for a long time and glad to have avoided strike three with a third consecutive quarter of negative growth.
Consumers still have a healthy amount of excess cash in savings with solid demand for service industry related spending going into the last innings of the year. Airlines, hotels, and rental car agencies suggest that demand is not fading as we move into the holiday season. Retail and food services card transactions remain ahead of pre-pandemic levels. The Fed induced a slowdown in the economy with higher rates although consumer spending supports the believe that the economy will not come to a griding halt.
Who doesn’t love the 7th inning stretch, especially at Fenway Park in Boston when the fans from both teams join to sing “Sweet Caroline?” The fourth quarter may be the Fed’s equivalent to a 7th inning stretch making it the appropriate time to see how the economy has responded to previous rate hikes.
In the six weeks between the Feds November and December meetings there will be two reports on inflation and jobs activity leading some to believe that the Fed could slow to a .50% hike in December. It’s not quite game over for rate hikes, but a breather would be welcomed.
Earnings season is not quite over. The percentage of companies beating sales estimates is steadily improving. It’s important to note that these averages were inflated by record setting reports as we came out of the pandemic. Overall, earnings season has not been outstanding, but better than expected.
Market outlooks are based on earnings growth, valuations, and macroeconomic fundamentals. History suggests that the best equity market performance occurs when the National League (Philadelphia) defeats the American League (Houston). For those of you rooting for Houston to grab their second victory in six years, you could argue that the US economy has been in or entered a recession the two past times that the trophy went to Philadelphia in 1980 and 2008. The average annual return in the twelve months following a NL victory is 4.3% greater than an AL win.
Stocks have rallied over the past week over hopes that the Fed may back off a bit with future rate hikes. It takes time for their actions to play out in the economy and now may be the time to pause and reflect as markets and the Fed remain data dependent. All eyes are on technology, energy, pharmaceuticals, and auto companies going forward. It appears that there could be a potential Fed pivot to a slower pace of tightening in the months ahead as the housing sector comes under considerable pressure from higher borrowing costs.
The Fed remains committed to bringing inflation back down to its 2.0% target. It appears that there may be some momentum building on the bench to take a breather considering how rapidly rates have climbed this year. Uncertainty remains around post-election market activity with potential for recounts or runoffs, especially in Georgia that could delay the final outcome past November 8.
Remaining in the game and having a plan remains critical. Just like financial markets this year, the World Series provides plenty of action, excitement, and a few curve balls. Stay focused and plan accordingly.
Source: FactSet, data as of 10/28/2022.
The opinions expressed are those of the writer as of October 16, 2022, but not necessarily those of Raymond James and Associates, and subject to change at any time based on market conditions and other factors. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. Investing involves risk and the possible loss of principal invested, investors may incur a profit or a loss. There is no guarantee any particular investment strategy will be successful. Past performance is no guarantee of future results. Changes in tax laws or regulations may occur at any time and could substantially impact your situation. Raymond James financial advisors do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.
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