October 2022 | Global Equity Markets Review

Equity markets bounced back strongly in October following the worst monthly performance year to date in September. The S&P 500 total return for October was 8.1% while the S&P Mid Cap 400 and S&P Small Cap 600 did even better at 10.5% and 12.4%, respectively. It is no coincidence a big up month followed a big down month as this pairing occurred earlier in the year (June and July) and ranks 2022 as one of the most volatile years in recent memory. October recorded the S&P 500 breaking below the June 16th bottom with a fresh low on October 12th before rebounding strongly in the days leading up to month end. Intraday volatility during the month was the highest for the year as investors were buffeted by changing perception of Federal Reserve policy and lowered expectations following the release of 3rd quarter company reports. Cyclical stocks outpaced non-cyclical stocks as hopes for a shift in Fed policy, combined with low valuations across cyclical sectors, buoyed investor confidence the new market low will hold. The newfound enthusiasm carried into value style indices which beat the growth style benchmarks by the widest margin since April.

The Fed’s determination to bring inflation down has been questioned despite consistent messaging by FOMC officials that their resolve was unwavering. Higher interest rates directly impact the relative appeal of equities versus bonds and indirectly affect the earnings outlook in what is likely to be a slowing economy. The latter consequence is already being seen in forward looking estimates for this year and 2023. The graph below illustrates the consensus estimates for the S&P 500 Index since March through the end of October and the lower trend is clearly visible. The second graph below is a longer-term perspective going back to 2000 for the same seven-month period in prior years. The risk of further economic deceleration as a consequence of the Fed’s efforts to lower inflation suggests the bottom in earnings forecasts may still be ahead of the market. It’s important to note the market will begin to rally before an earnings trough is reached. The debate centers on whether the October rally can make further price gains if improvement in company fundamentals is not evident until early or mid-2023.

Global equity markets followed U.S. markets higher in October with the notable exception of China. The S&P Global ex-U.S. total return for September was 2.9% with positive results from developed markets (+5.3%) while emerging markets declined 3.5%. Market leadership was evident in European developed markets (+7.2%), emerging European bourses (+16.2%) and emerging Latin America (+9.4%). Asian emerging markets were the weakest in October declining 6.7% led by China which is still dealing with COVID related lockdowns prompting a sharp decline in near-term economic growth. The U.S. dollar declined 0.5% in October, the first time since April and only the second monthly decline this year.

The rebound in the majority of global equity markets in October is a welcome relief from what appears to many to be a relentless period of weakness in 2022. Calendar year bias adds to the anxiety as the peak in most global markets, including the S&P 500 Index, occurred on the first trading day of the year. The risk of a sharp slowdown in global economic activity has increased this year as central bank activity has been highly coordinated in their efforts to combat high domestic inflation rates. There has been accumulating evidence of supply chain improvements and falling commodity prices with little damage outside credit-sensitive economic sectors. Labor demand remains exceptionally strong following the reopening of the global economy and provides much-needed cushion for global central banks to be successful in their efforts. The history of failed monetary policies is due more to the lack of resolve and coordination in combating the pernicious effects of inflation.

Notes & Disclosures

Index Returns – all shown in US dollars

All returns shown trailing 10/31/2022 for the period indicated. “YTD” refers to the total return as of prior-year end, while the other returns are annualized. 3-month and annualized returns are shown for:

• The S&P 500 index is comprised of large capitalized companies across many sectors and is generally regarded as representative of US stock market and is provided in this presentation in that regard only.
• The S&P 500® Equal Weight Index (EWI) is the equal-weight version of the widely-used S&P 500. The index includes the same constituents as the capitalization weighted S&P 500, but each company in the S&P 500 EWI is allocated a fixed weight - or 0.2% of the index total at each quarterly rebalance. The S&P 500 equal-weight index (S&P 500 EWI) series imposes equal weights on the index constituents included in the S&P 500 that are classified in the respective GICS® sector.
• The S&P 500 Growth Index is comprised of equities from the S&P 500 that exhibit strong growth characteristics and is weighted by market-capitalization.
• The S&P 500 Value Index is a market-capitalization weighted index comprising of equities from the S&P 500 that exhibit strong value characteristics such as book value to price ratio, cash flow to price ratio, sales to price ratio, and dividend yield.
• The Russell 3000 Index tracks the performance of 3000 U.S. corporations, determined by market-capitalization, and represents 98% of the investable equity market in the United States.
• The Russell Mid Cap Index measures the mid-cap segment performance of the U.S. equity market and is comprised of approximately 800 of the smallest securities based on current index membership and their market capitalization.
• The Russell 2000 Index is a market-capitalization weighted index that measures the performance of 2000 small-cap and mid-cap securities. The index was formulated to give investors an unbiased collection of the smallest tradable equities still meeting exchange listing requirements.
• The MSCI All Country World Index provides a measure of performance for the equity market throughout the world and is a free float-adjusted market capitalization weighted index.
• The MSCI EAFE Index is a market-capitalization weighted index and tracks the performance of small to large-cap equities in developed markets of Europe, Australasia, and the Far East.
• The MSCI Emerging Markets Index is a float-adjusted market-capitalization index that measures equity market performance in global emerging markets and cannot be purchased directly by investors.
• The S&P Global BMI sector indices are into sectors as defined by the widely used Global Industry Classification Standards (GICS) classifications. Each sector index comprises those companies included in the S&P Global BMI that are classified as members of respective GICS® sector. The S&P Global BMI Indices were introduced to provide a comprehensive benchmarking system for global equity investors. The S&P Global BMI is comprised of the S&P Emerging BMI and the S&P Developed BMI. It covers approximately 10,000 companies in 46 countries. To be considered for inclusion in the index, all listed stocks within the constituent country must have a float market capitalization of at least $100 million. For a country to be admitted, it must be politically stable and have legal property rights and procedures, among other criteria.
• The Barclay’s US Aggregate Index, a broad-based unmanaged bond index that is generally considered to be representative of the performance of the investment grade, US dollar-denominated, fixed-rate taxable bond market.
• The Bloomberg Barclay’s US Corporate High Yield Index, which covers the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market.

An index is a portfolio of specific securities, the performance of which is often used as a benchmark in judging the relative performance to certain asset classes. Index performance used throughout is intended to illustrate historical market trends and performance. Indexes are managed and do not incur investment management fees. An investor is unable to invest in an index. Their performance does not reflect the expenses associated with the management of an actual portfolio. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. All investing involves risk including loss of principal. Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal, and potential liquidity of the investment in a falling market. Past performance is no guarantee of future results.

Key Indicators

Key Indicators correspond to various macro-economic and rate-related data points that we consider impactful to equity markets.

• The US 10-Year Treasury Yield (%)/bps, is the return on investment for the U.S. government’s 10-year debt obligation and serves as a signal for investor confidence.
• SPDR Gold Trust Price ($), is an investment fund that reflects the performance on the price of a gold bullion, less the Trust’s expenses.
• West Texas Intermediate, which is an oil benchmark and the underlying asset in the New York Mercantile Exchange’s oil futures contract.
• CBOE Volatility Index (Level)/% Change, which uses price options on the S&P 500 to estimate the market's expectation of 30-day volatility.

General Disclosure

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