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Weekly Economic and Stock Market Commentary – October 3, 2022


As for the stock market specifically:

“October is the worst month to invest money, except for November, December, January, and the other months,” so said American writer Mark Twain. That is about the limit of my literary knowledge and the way I start the first commentary in October every year.

September lived up to its billing as the only month of the year with a statistical decline. In fact, with was the worst September in about 20 years.

Mark Twain also popularized the phrase “Lies, (darn) lies and statistics.”

Notwithstanding Mr. Twain, let’s take just a moment to show the returns needed to recover from a decline – without withdrawals.

If you take withdrawals during market downturns, the return to recover will obviously increase.

At this point, you may ask, “Ok, dummy, what do you think?”

The pertinent thoughts tell me the market is well oversold (a chart reading of 68% oversold) and due for a snapback. Only time will tell if the snapback will be a short-lived move to neutral or the beginning of a new rally.

The next thought I have falls into the category of “Lies, (darn) lies, and statistics.” Going back to the Crash of 1929 (yes, it did happen in October, as did the crash in 1987), once the stock market hits a 20% decline, the average bear market has a peak-to-trough drop of 37%. We haven’t moved that far down.

On the relative strength front, last week, we saw the relative strength of stocks vs. cash make a sell signal (favoring cash). We also saw the relative strength of bonds vs. stocks move in favor of bonds.

There was little movement in the bullish percent indicators last week compared to the past few weeks, but they did decline. Not that it matters why, but we may be at the point where the bears may have worn themselves out. WEALTH PRESERVATION exists now and until further notice.

Remember, X’s mean OFFENSE or wealth accumulation, while O’s mean DEFENSE, or wealth preservation.

Below is where our indicators stand as of September 30, 2022 (Courtesy Dorsey, Wright, and Associates).

On a general note:

The Department of Commerce announced the August number for the Federal Reserve’s preferred inflation measurement, and it wasn’t good. The Personal Consumption Expenditure method of inflation measurement showed a monthly gain of 0.3%, compared to a slight decline in August. The year-over-year number showed a gain of 6.2%, which is down from the 6.4% annual rate of July. The core rate rose to 4.9% in August compared to July’s 4.7% gain.

The S & P CoreLogic Case-Schiller Home Price Index fell 0.3% in July compared to June. That was the first decline in more than 10 years. Prices rose 15.8% compared to July 2021, down from the 18.2% rise from June to June.

Questions or want to talk? Email me at philip.rongo@ibexwealth.com.