Globally, stocks tumbled as interest rates ratcheted higher as the UK considered tax cuts in the face of rising inflation. The MSCI All Country World Index slipped 2.6% while the Dow Jones and S&P 500 each fell 2.9%. The NASDAQ declined 2.7%. Equity markets overseas were mixed with European stocks gaining 0.4% while Japanese stocks plunged 5.4%. The 10-year U.S. Treasury yield rose 14 basis points to 3.83%.
Former Fed Chair Paul Volcker’s biography was titled, “Keeping at It: The Quest for Sound Money and Good Government.” It is probably not a coincidence that current Fed Chair Powell finished his Jackson Hole speech in August by saying, “We will keep at it until we are confident the job is done.” 1
Given the Fed’s acknowledgment that a recession may be necessary to drive down inflation back towards its 2.0% target, investors appear to be viewing weakening economic data as potentially positive if it means lower odds of a Fed overshoot. While we understand the “bad news is possibly good news” mentality, we would caution that much of the impact of the recent monetary policy tightening has yet to be felt and the “bad news” could accelerate heading into 2023.
Despite being dealt a rough hand in 2022, we encourage investors to remember that time in the market is often more important than timing the market. Please see our CIO Strategy Bulletin | Why Not Just Sit This One Out?
The next Weekly Market Update will be on October 17, 2022, as we observe the Federal holiday.