The Fed Decides

Weekly Market Update | October 31, 2022

Highlights

Stocks surged globally as U.S. corporate earnings remained resilient (excluding some technology companies) and the pressure on bond yields eased with the MSCI All Country World Index rising 3.3%. In the United States, the S&P 500 rallied 4.0% while the Dow Jones climbed 5.7% (the index is up 14.0% in October). The tech-heavy NASDAQ trailed behind with a 2.2% rise. Equity markets overseas were also strong with European stocks adding 5.2% while Japanese stocks climbed 2.9%. The 10-year U.S. Treasury yield dropped 20 basis points to 4.01%.

The Federal Reserve is widely expected to raise interest rates by another 75-basis-points at its November 2 meeting. However, the pace of the rate hikes may slow beyond this meeting with a downshift from 75-basis-point rate hikes to 50-basis-point rate hikes in December 2022 and February 2023 possible.

A slower pace from the Fed does not mean that the bulk of economic impact is now behind us. Forward-looking economic data continue to point to a further slowing in the global economy.

The housing market is a primary example of further cooling to come with the national Case-Shiller home price index having just experienced its largest one month drop since the Global Financial Crisis. Likewise, business surveys are suggesting that jobs are becoming less plentiful and that the labor market may be nearing a turning point.