The third quarter of 2022 was another rocky one, combining an optimistic summer rally with a large selloff at the end.1
Driving the quarter’s performance were historically high inflation, aggressive Federal Reserve tightening, and concerns about the global economy.
Let's take a look at how markets performed and what we might look forward to in the months to come.
Looking Back: How Did Markets Perform Last Quarter?
The broader U.S. market sank on continued interest rate and economic concerns.
The tech-focused NASDAQ sank on higher interest rates and investor pessimism.
Blue chip stocks also dropped in Q3 along with the broader market.
Looking Ahead
What Could We See Six to Nine Months Ahead?
These are challenging times to make predictions about the future. The following gauges represent a forward look at what some analysts think we might see over the next few months. Since a simple projection can't represent all opinions or probabilities, we've highlighted risks and opportunities for each.
U.S. Economic Outlook
Risks: Persistent inflation, aggressive interest rate hikes, and ongoing global issues point to a potential recession.
Opportunities: A strong labor market and consumer spending could drive growth.
Equity Outlook
Risks: Uncertainty about interest rates and economic outlook are likely to weigh on markets.
Opportunities: However, a peak in inflation could cause stocks to bounce back.
Consumer Sentiment
Risks: Inflation, slowing growth, and higher interest rates could dent optimism.
Opportunities: A healthy job market, savings, and student debt relief could drive strong sentiment.
Monetary Policy
Risks: Raising interest rates quickly may hurt earnings and slow economic growth, potentially triggering a recession.
Opportunities: Slowing inflation down could increase confidence in the economy and spur demand.
Geopolitical Risk
Risks: The war in Ukraine could increase the risk of a direct conflict between Russia and NATO.
Opportunities: A peaceful settlement could lessen the damage and reduce the human and economic pain.
Inflation
Risks: Inflation could remain high and persistent, especially if energy prices spike.
Opportunities: Inflation could be past its peak and stabilizing.5
"Long-term success depends so much on avoiding the classic mistakes that hurt investors when markets get rocky."
Key Takeaways for Savvy Investors
You might have seen the headlines clamoring that stocks and bonds had their worst quarter in years.
But they don't paint the whole picture. They're just trying to grab your attention.
It's easy to focus on the negative when the future looks uncertain and grim. Humans are wired that way.
We tend to skip right over the positive news and focus on the negative.
I don't have a crystal ball to be able to tell you what the economy or markets will do next.
I can't tell you whether we're in a recession yet or whether one is coming.
I can tell you that we have a resilient economy, the jobs market still looks healthy, and investors are poised for optimism if inflation and interest rate hikes stabilize.
I can also tell you that the last quarter of the year has historically been a strong period for stocks.
The bottom line is this: we can't control the macro environment. But we can control our own actions and reactions. We can approach an uncertain future with prudence, flexibility, and wisdom.
Looking ahead, we're expecting significant volatility through the rest of the year as investors digest inflation and economic data, Federal Reserve moves, and midterm elections in November.
I’m watching, I’m judging the conditions, and I’ll be in touch with changes
Questions? Please reach out. I'd be happy to chat.
Paavan Kotini, CEO & Principal Advisor
Kotini & Kotini
(804) 372-8307
Sources:
U.S. Economic Outlook, Equity Outlook, Consumer Sentiment, Monetary Policy, Geopolitical Risk, and Inflation gauges: https://www.cnr.com/insights/speedometers.html (October 2022)
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