US equity markets rebounded meaningfully from lows during October amid continued volatility. The rally came as markets digested a plethora of economic data that showed inflation remains elevated and hinted at slowing economic growth. Additionally, investors began to parse the Q3 earnings season that is so far showing blended quarterly earnings growth of 2.2% for the S&P 500 according to data from Factset (just over half of S&P 500 companies have reported earnings). Small caps outperformed large caps during the month as dollar strength weighed on larger corporations – smaller companies generally derive a greater percentage of their revenues domestically and therefore may have less exposure to foreign exchange rate fluctuations.
International equities were mixed for the quarter as economic data and geopolitical events took center stage. First off, inflation has continued to accelerate in many European countries, sparking renewed concern about the path of monetary policy and economic growth. Moreover, UK stocks experienced a whirlwind month as newly minted prime minister Liz Truss ultimately resigned after putting forth unpopular fiscal policy plans. Despite ongoing uncertainty and the leadership shakeup, international developed stocks gained on the month. In China, leader Xi Jinping stepped into a third term in power which seemingly led to a selloff as ambiguity surrounding government policy took hold. This contributed to the negative return for emerging markets.
Fixed income markets saw moderate declines in October, extending what has thus far been a tough year for bond investors. Uncertainty surrounding the future path of interest rates continues to draw focus in the space. With the FOMC likely to hike by an additional 0.75% at its November meeting, investors will be looking for any clues pertaining to future rate decisions. Tax-exempt municipal bonds fared better than taxable bonds during October and thus far in 2022.
A note on Series I Savings Bonds:
One investment that has garnered a lot of buzz this year is Series I savings bonds – these bonds issued by the US government pay a fixed rate plus a variable rate that’s tied to inflation and resets twice per year. With inflation being as high as it has, these bonds have offered attractive yields (at one point 9.62%) and may continue to present an opportunity. There are, however, a few catches: the bonds must be purchased directly from the government (they can’t be purchased in a brokerage account) and there is a $10,000 per person per year limit on purchases. Still, despite a recent decrease in I bond rates, they could offer a way to earn relatively high yield on at least a portion of savings for those with cash on the sidelines. Please feel free to reach out to your RiversEdge associate to learn more.