October proved to be another difficult month for the markets (and our portfolios), but what a recovery we’ve had this week! Since Monday Oct 30th, we’ve witnessed triple digit market closes – in the US for all five days (as of this writing) and even here in Canada, during most of those sessions. Therefore the first three days of November are shaping up to more than erase the less-than-stellar October results.

During previous periods of uncertainty, we’ve often been able to point to a clearer direction in terms of consumer sentiment. This time around, that area has been far murkier. In something called “The Present Situation” index, we are seeing that consumers are extremely confident with the present conditions. The labour market has tightened (less jobs are available) and business conditions continue to improve and are now in positive territory. Despite the aforementioned, it still appears expectations six-months-out for jobs and the overall business environment remain in negative territory - hence the contradiction.

All of the above being said, it appears a recession is nowhere in sight. And I think it is this factor that has caused the most confusion – a sort of “are-we-or-aren’t-we” scenario. Yes, anecdotally it might feel like we’re in one currently, but the data just doesn’t support this.

I still maintain that far too many got used to the larger gains we saw during those ultra-low interest rate years. Sure, we witnessed the stock market snap back significantly in the latter half of 2020 and then all through 2021, but 2022 brought us back to earth with below-average returns across most sectors. This proved to be a “righting-of-the-ship” as most developed nations began combating high inflation by hiking rates, and well into 2023, we’re still feeling these effects.

While sharp corrections and prolonged bear markets are unpleasant, they are a normal part of investing in equities. Since 1928, the S&P 500 has experienced 26 bear markets—defined as declines of 20% or more. This means investors should expect a bear market, on average, once roughly every four years.

On the positive side, the S&P 500 and Nasdaq are transitioning from the intermediate-term overbought levels heading into this past summer toward oversold levels, while interest rates are showing signs of peaking. Perhaps the main reason markets have performed so well this week is that we’re getting hints that the central banks may be finished their aggressive tightening stance.

Overall, this overbought situation would suggest we’re likely in the midst of a Q4/year-end rebound which will kick-start an upward performance cycle into 2024.

This all leads me to remind clients and anyone else who will listen…

There is no doubt these past few months have been trying when it comes to watching the stock market, but patience is always your friend in these situations.

Libby

 

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