As for the stock market specifically: A pattern in 2022 has been for the stock market to appear to have found its sea legs, only to stumble. We saw that last week when the markets suffered substantial declines after a few strong weeks. The blame for last week’s losses went towards the Federal Reserve, which, as I say often, may or may not be the “real reason.”
I don’t get into politics in this space, as you know, but the end of one silly season brings the beginning of another.
What I am describing is the mutual fund distribution season. Due to the tax laws, traditional mutual funds (those with 5-letter symbols) are required to distribute capital gains at least once per year.
These distributions normally occur during November and December. I am not sure how many funds will be sending out gains this year, but I am sure there will be a few.
These distributions can scare investors into believing tremendous losses occurred when, in fact, there was no change in overall market value.
Here is an example. Suppose the ABC Fund closed today at $12.50, and you owned 8 shares, for a total value of $100. At today’s close, the fund will distribute $2.50 per share of capital gains ($20). That will reduce the share price to $10. However, if you reinvest dividends, as is common in a company retirement plan, that money will buy more shares (2), and you still will own $100 of the fund.
The bullish percent risk indicators moved down slightly. They didn’t move far enough to change the overall direction, nor even far enough to threaten a change in direction. I continue the recommendation of WEALTH ACCUMULATION.
Remember, X’s mean OFFENSE or wealth accumulation, while O’s mean DEFENSE, or wealth preservation.
Below is where our indicators stand as of November 4, 2022 (Courtesy Dorsey, Wright, and Associates).
On a general note: The Department of Labor provided the October employment report that showed the economy added 261,000 jobs during the month. That was substantially better than the 200,000 jobs estimated by the consensus of economists. The unemployment rate rose to 3.7% as the labor participation rate fell once again. Depending upon which version of jobs is used, the total number of people employed in the country is either above or below where we were in February 2020.
In a related report, the Labor Department announced the third quarter employment cost index. The report stated labor costs rose by 5.2% during the quarter compared to the third quarter of 2021. This is well below the 8.2% rate of inflation over the same time frame.
As mentioned in the opening paragraph, the Federal Reserve met last week, and raised short-term interest rates by 0.75%. That move was anticipated widely. The markets rose shortly after the announcement, and then fell for the session, and continued declining the next day.
If you want more information or have any questions, please contact me.