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Weekly Commentary

ND&S Weekly 9.26.22 – What It Takes

It was another tumultuous week for investors as the markets continued to process new information from the Fed. One thing became clear, the equity markets are finally realizing the Fed will indeed “go bigger, for longer” on inflation. The Federal Open Markets Committee (FOMC) met and announced a rate hike of 75 basis points. Additionally, the FOMC laid out a hawkish path for rates, one that could take the policy rate to mid-4% range in 2023. In the wake of the meeting, US yields have risen sharply with 2yr US Treasury note reaching 4.2%, the highest since 2007.

For the week, the DJIA fell 4.00% and the S&P 500 dropped 4.63%. The tech-heavy Nasdaq slid 5.06%. International markets were also down. For the week, the MSCI EAFE Index (developed international) finished lower by 5.59% and emerging market equities (MSCI EM) dropped 4.02%. Small company stocks, represented by the Russell 2000, were down sharply (-6.58%) for the week. The 10 YR US Treasury closed at a yield of 3.69% (up 24 bps over the week) and as a result, fixed income, represented by the Bloomberg/Barclays Aggregate, fell 1.56% as yields moved sharply higher. Gold prices finished at $1,644/oz. – down 1.58% on the week. Oil prices retreated to $78.74 per barrel, down 7.4% on the week.

Looking ahead, concerns regarding a slowing economy and rising costs have increased. 2023 earnings expectations have remained high, still pointing to 8% year-over-year growth next year. A more realistic view suggests analysts will begin to cut expectations for future earnings if the continued tight monetary environment tips the economy into a recession. 3q22 earnings season will begin in a couple of weeks and we should see companies begin to reduce guidance. The bearish story is well known, and we are certainly in the mix of the chaos. In times of panic, we are reminded of the quote from investor Byron Wein, “disaster has a way of not happening”. Investor sentiment is at extreme levels and technical indicators are indicating oversold conditions. Markets have already begun discounting the slowdown and we wouldn’t be at all surprised if equity markets were to have a relief rally in the short-term.

“The science of today is the technology of tomorrow.” – Edward Teller

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