Third Quarter 2022 Executive Summary

Yes, it has been a wild ride.

The markets entered the third quarter of the year breathing a collective sigh of relief, kicking it off with a robust rally, amid solid corporate earnings and hopes that inflation had perhaps peaked.  But the second half of the quarter saw a harsh about face, as continued inflation, additional interest rate hikes and escalating geopolitical tension weighed heavily on the market.  U.S. stocks plummeted, erasing earlier gains and then some, ending the quarter in negative territory and recording the worst opening nine months of the year in twenty years.  

And so, we find ourselves much as we exited Q2, with the Fed working towards a “soft landing,” attempting to curb inflation without crippling economic growth – no small task with inflation at a 40-year high.  “There is no painless way to get inflation behind us,” said Fed Chair Jerome Powell.   

However, the outlook is not all gloomy.  While the probability of a recession is rising, there is cause for optimism.    

• Corporate America has shown its resilience in a difficult and complicated environment.  Earnings declines predicted going into 2022 have not materialized.  

• Businesses are optimistic.  According to a Bank of America survey, the percentage of small business owners who expect the national economy to improve and expect their revenue to increase over the next twelve months is up from earlier this year.  Consumer confidence is up for the quarter as well.   

• The job market remains strong, with September unemployment at 3.5%, comparable to pre-pandemic levels (although this can be a double-edged sword in this inflationary environment).

• History is on our side.  Historical inflation peaks are almost always followed by a 12-month increase in stock prices.  “On average, the S&P 500 gained 13.2% in the 12 months following the inflation peak,” according to James Paulen of the independent research company The Leuthold Group.  

A bear market hit U.S. stocks this year, and the buy-quality-and-hold philosophy is in vogue.  That’s a concept that has never gone out of style at CORE.  We focus on your long-term goals and objectives and look for QUALITY securities – companies with healthy balance sheets and good cash-flow who can better weather the storm.  And we never have and never will believe in market timing.   As Peter Lynch once said, “Far more money has been lost by investors preparing for corrections, than has been lost in corrections themselves.”   

The investment landscape is continually evolving.  And while the short-term is anything but certain, we remain dedicated to helping you navigate these uncertain times.  Focus on the long term.  Remain patient.  Stay the course.  

“Patience is bitter, but its fruit is sweet.”   – Jean Jacques Rousseau

Recent Economic Data: 

Gross Domestic Product (GDP).  The GDPNow model estimate for real GDP growth in the third quarter of 2022 is 2.9%, (seasonally adjusted annual rate; estimate released October 7, 2022), up from a decrease of 0.6% in Q2 2022.  

Unemployment.  The unemployment rate edged down to 3.5% in September.  Total non-farm payroll employment increased by 263k in September, with the number of unemployed persons at 5.8 million. 

Consumer Confidence.  The Conference Board Consumer Confidence Index, an indication of consumer attitudes and buying intentions now stands at 108 (1985=100).  After declining in Q2, the index rose during Q3, supported by jobs, wages, and declining gas prices. 

Consumer Price Index (CPI).  The CPI for All Urban Consumers (CPI-U), a measure of inflation which shows “cost of living” fluctuations, increased 1.0% in August on a seasonally adjusted basis, and for 12 months ending August the CPI-U increased 8.3% before seasonal adjustments. 

Earnings.  For Q3 2022, the estimated earnings growth rate for the S&P is 2.4%, a decrease from Q2’s growth rate of 6.3%.  Labor costs have been cited as the leading factor having a negative impact on earnings, revenues, and profit margins in Q3, followed by supply chain disruptions and other costs.  

Housing.  Privately-owned housing starts in August were at a seasonally adjusted annual rate of 1,575,000, slightly lower than the August 2021 rate of 1,576,000. Builders’ confidence fell for the ninth consecutive month in September as increasing interest rates, continuing supply disruptions and high home prices continue to take a toll.  

We are committed to serve you with the highest standard of care in keeping with our corporate mission of 

Building Relationships … Enhancing Lives.

Executive Summary Sources:

https://www.barrons.com/livecoverage/stock-market-today-903022/card/stocks-ending-month-with-losing-streak-not-seen-since-2009-JncIzERQZn67cXjVrWAt

https://www.prnewswire.com/news-releases/bank-of-america-finds-66-of-small-business-owners-expect-revenue-increases-over-the-next-year-52-plan-to-expand-their-businesses-301641442.html#:~:text=Over%20the%20next%2012%20months,up%20from%2037%25%20this%20spring

https://markets.businessinsider.com/news/stocks/stock-market-outlook-peak-inflation-drives-equity-upside-cpi-sp500-2022-6

https://www.bls.gov/news.release/archives/empsit_03062020.pdf

https://www.calculatedriskblog.com/2022/09/nahb-builder-confidence-declined-in.html

https://www.atlantafed.org/cqer/research/gdpnow

https://www.bea.gov/news/2022/gross-domestic-product-third-estimate-gdp-industry-and-corporate-profits-revised-2nd

https://www.bls.gov/news.release/pdf/empsit.pdf

https://www.conference-board.org/topics/consumer-confidence

https://www.bls.gov/news.release/cpi.nr0.htm#

https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_100722A.pdf

https://www.census.gov/construction/nrc/pdf/newresconst.pdf

https://www.morningstar.com/indexes/dji/!dji/performance

https://www.morningstar.com/indexes/xnas/@cco/performance

https://www.morningstar.com/indexes/spi/spx/performance

https://finance.yahoo.com/quote/%5EIXIC/history?p=%5EIXIC

https://finance.yahoo.com/quote/%5EDJI/history?p=%5EDJI

https://finance.yahoo.com/quote/%5EGSPC/history?p=%5EGSPC

The views expressed represent the opinion of Asset Management Financial Solutions, Inc. (“AMFS”) and are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and AMFS’s view as of the time of these statements.  Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties.