September Was The Worst Month For Stocks Since The Start Of The Pandemic

The Fourth Quarter Setup Does Not Look All That Bright Either

Oct 03, 2022

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This week the newsletter will get a FRESH NEW LOOK! Let me know what you think down in the comments section.

Market Recap ⏪

The markets were an absolute slaughterhouse last week as we concluded the worst month for US Equities since the start of the pandemic back in early 2020. Going in, we knew the month of September has historically been bad for equities, and the trend continued in 2022.

Could there be some good news on the horizon? Potentially! Over the past six previous instances in which the S&P 500 fell 7% or more in the month of September, five of those six instances has resulted in a rebound during the month of October.

1974 September -11.9%/October +16.3%
1986 September -8.5%/October +5.5%
2001 September -8.2%/October +1.8%
2002 September -11.0%/October +8.6%
2011 September -7.2%/October +10.8%

The one outlier of this was in 2008, as we were in the midst of the Great Recession, the S&P 500 fell 9.1% in September and continued that trend in October with the index falling an additional 17%.

The Federal Reserve continues to mention “more pain ahead” as they forecast a terminal Fed Funds rate of 4.6%, which they are aiming to reach in 2023. For perspective, the current range sits at 3.00% - 3.25%, so there is still well over 100 basis points worth of rate hikes to go before the peak is reached.

Here is how the great Warren Buffett described interest rates:

Inflation continues to be an issue for the markets, which is why the Fed continues its quantitative tightening policy. Stimulus from prior years and a low rate environment are reasons why we are where we are, but the Fed is looking (without saying) for the labor market to crack, which would help alleviate inflation pressures.

This past week the initial jobless claims hit a five-month low, despite rising interest rates.

193,000 initial jobless claims
215,000 estimated

The 193K was a decrease of roughly 16,000 from the previous week, which further adds to the strong labor market. Once the labor market starts to crack is when we investors can start thinking about a nearing bottom.

US Markets 🇺🇸

Here is a performance summary for US Equities:

Here is a look at US Treasuries:

The Fear & Greed Index measures market sentiment based on the following seven factors: put/call ratios, junk bond demand, stock price breadth, market volatility, stock price strength, safe-haven demand, and market momentum.

When it comes to the Fear and Greed Index, in a matter of a few weeks we went from a neutral reading to an Extreme Fear reading. Inflation hot, rates moving higher for longer, and earnings needing to come down all leading to more pain in the markets. Currently, the index has a reading of 15. This reading continues to fall from the prior week.

Earnings on Deck 💰

Q3 earnings are beginning and only a few companies are expected to report this week.

Thursday (BMO): McCormick & Company MKC 0.00%↑
Thursday (BMO): Constellation Brands STZ 0.00%↑

Notable Analyst Updates 📝

Wedbush lowers PT on Micron (MU) to $65 from $85
Evercore upgrades warehouse REIT Prologis (PLD) to Outperform
Morgan Stanley slashes PT for FedEx (FDX) to $125
Citi lowers PT of McDonald’s (MCD) to $246 from $275
Deutsche Bank increases PT of PepsiCo to $181
Citi lowers PT of General Motors (GM) to $78 from $87
Citi lowers PT of Ford (F) to $13 from $16
Wells Fargo downgrades Lockheed Martin (LMT) to underweight
Citi lowers PT of Caterpillar (CAT) to $180 from $195
Bank of America downgrades Apple (AAPL) to neutral from buy
Barclays cuts PT of Verizon (VZ) to $40 from $48

This Week 📆

Monday

ISM Manufacturing

Tuesday

Durable and factory orders
Job openings
FED ALERT: Fed Governor Philip Jefferson

Wednesday

ADP Employment Survey

Thursday

Jobless claims
FED ALERT: Fed Governor Lisa Cook
FED ALERT: Fed Governor Christopher Waller

Friday

Nonfarm payrolls

Other Resources 📺

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