Market Commentary 11/09/22

After declining over 9% in September, the S&P 500 gained 8.1% during October. Likewise, the Russell 2000 Index of small cap stocks reversed direction, gaining 11.2% during October after declining 9.7% in September. In the bond markets, high yield corporate bonds outperformed as credit spreads tightened. However, investment grade bonds produced a slight loss as Treasury yields continued to move higher. As we have discussed in our previous commentaries, we attribute this stock and bond market volatility to investor uncertainty, and perhaps anxiety over the Federal Reserve’s interest rate policy.

The October equity market rally was driven by the concept of a “Fed pivot”, which is defined as reversal in the Federal Reserve raising interest rates. The pivot concept gained steam recently as Fed officials started to debate when and how to stop raising interest rates, which the market interpreted as fewer rate hikes and a lower terminal rate. Stocks traded higher as the market priced a lower terminal rate. Until the direction of Fed policy is clearer, the market’s projected terminal rate will continue to fluctuate. This means volatility could remain elevated in coming months.

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Important Disclosures: Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The report herein is not a complete analysis of every material fact in respect to any company, industry or security. The opinions expressed here reflect the judgment of the author as of the date of the report and are subject to change without notice. Any market prices are only indications of market values and are subject to change. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request. CAR-1122-01009

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