Worst months and best months in the stock market often occur close together. September was a miserable month for investors. The S&P 500 index declined 10% in September taking out the June low and setting a new low for the year. Fortune magazine reported September as the worst month since the start of the pandemic in March of 2020.1 It was the worst September since 2008.
October brought welcome relief. The heavily oversold market rebounded and recovered a good portion of the September losses. The Dow surged 13.9% and Investor’s Business Daily called it the best month for the Dow since 1976.2 The S&P 500 gained 8% and the beaten down Nasdaq gained 4%. The market is still in negative territory for the year and the challenges brought on by inflation, higher interest rates and a possible recession remain with us.
The Federal Reserve Board announced another 0.75% short term rate hike on Wednesday, November 2nd at 2:00 pm. The increase was highly anticipated so not a surprise, but all ears were tuned to the forward-looking comments regarding the current position of the Board. The short statement that accompanied the rate announcement seemed less harsh and more accommodative than previous communications and the Dow moved up 418 points immediately following the announcement.
Then Chairman Powell took to the microphone at 2:30 pm to answer questions of the press. The market quickly changed direction as the Chairman said it is far too early to take a softer approach. The Wall Street Journal headlined its “Heard on the Street” report that evening: “From Hawk to Dove and Back”. The editor reported, “Investors seemed to have a harder time than usual deciphering the Federal Reserve's language on Wednesday. But by the end of the day they were pretty sure they didn't like it.” By the close of the market at 4 pm, the Dow was down 506 points, a loss of 1.6%. The S&P fell 2.5% and the Nasdaq fell 3.4%.
Investors were clearly disappointed with the continued hawkish stance. All eyes will be on the November inflation report with hopes that prices continue to decline.
The leadership of the Dow in the October rally and the struggle of the tech heavy Nasdaq is a nod to value stocks. A select number of value stocks continue to trade near their all-time highs. It is note-worthy that there are fewer individual stocks putting in new lows than we saw back in June. That speaks of some improvement under the hood. Financial news usually focuses on the major indexes, but if the underlying stocks are showing improvement, that should eventually impact the indexes in a positive way.
After four failed rallies this year, the October rally is the fifth attempt to recover from this year’s bear market. We see some encouraging signs, but only time will tell if this October rally holds.If you have questions about your account and would like a review, please call us.
Written by Connie C. Guelich, CFP, AEP, CLU, ChFC. This represents our views at the time of this writing, and it is subject to change. It is not intended to be personal investment advice. If you would like to discuss your own account, please don’t hesitate to call us.