Market Update October 2022Oct 31, 2022
This has been a good month for the market. The S&P 500 has rallied, not really on good news, more on adaptive news. People are adapting to the new reality. The reality that inflation is here to stay, the reality that the Fed will raise interest rates…the hope that the rise might slow - but won’t stop.
Corporate earnings haven’t been great.
Elon Musk finally bought Twitter and declared himself chief Twit.
I think what we are really seeing is pre-election optimism…right now, we have the holiday season coming up. Consumer spending is still climbing, which makes people hopeful that retail will end the year positive.
I think that’s hopeful thinking. Big-box retail has shown that they are consistently making bad calls about what consumers want.
It doesn’t help that the numbers everyone looks at are skewed. They show hope, but they are hiding the underlying truth. People are hurting. They are hurting bad.
Credit Card debt is up to pre-pandemic numbers. People have tapped out their savings, and they are tapping their credit cards to help get them through this period. Wages are on the rise…but not fast enough to keep up with costs.
Right now, we have competing forces working against each other. We have onshoring and bringing back of high-tech manufacturing to the US. We have an excess inventory - of the wrong items - from covid. We have consumers that are still spending, but they are shifting their spending to essentials. The numbers show an increase in overall spending, but when you dig down, it's because essentials and labor costs have risen - not because people have more money to spend or confidence about the future.
Economically, I don’t think we have enough workers to fill out the labor positions we currently have - or will have in the near future. I think this will keep wages tight. Labor tight. And continue to drive inflation.
Politics, national security, and monetary policy are at odds for the first time in a long time.
The politicians want to win votes and give away free money.
The national security-minded folks in government are incentivizing industry to come back to the US…the only way to do this is by giving away more free money and/or imposing tariffs in name or fact on imports. Which will just increase the inflation problem.
Meanwhile, the Fed has a real credibility problem. The only currency the Fed real has is the fact that people believe they are impartial and able to control the flow of money. Over the Trump administration, the market has come to believe that they control the Fed, or at least can predict what they will do.
Nobody thinks the Fed is doing a good job.
And congress is actively trying to sabotage their efforts due to competing agendas.
So this dick-measuring contest will continue until we have a winner - or, more likely, we are all hurt so badly that nobody cares anymore.
The fact that it is the midterms doesn’t help.
The only thing we can count on - this upwards trend is about to reverse itself. Why? It’s the dealer's choice, either election outcomes, corporate earning results, holiday revenues, Fed action, or the inevitable showdown with China and the US that is brewing over the semiconductor industry - which is vital for both our nation's military.
Whatever happens…the next 3 months are going to be a wild ride. So hold on tight. Harvest your gains and your losses, and make sure that you are using a strategy that is designed to preserve your savings while taking advantage of the inevitable opportunities.
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