T2 Asset Management



2 Trans Am Plaza Dr., Suite 200
Oakbrook Terrace, IL 60181





Market Commentary




What a month we experienced in October! When we last wrote, the market was down 2% for the month, and we advised caution due to rising interest rates. Well, that turned out to be an understatement as the market proceeded to give us the worst month in a decade with the damage hitting -11% on the S&P 500 Index before bouncing a bit in the last week. The most likely reason continues to be a rise in interest rates as the Federal Reserve seems ready to raise rates further to cool the economy.


Third quarter earnings season got underway in October and it seemed that those higher rates and inflation were beginning to have an effect. Earnings were as strong as ever, but many CEOs are starting to warn that the coming 12-18 months are probably going to be a bit weaker than the last. This is where the market starts to look out ahead of the economy and begins to forecast what is coming and not what is here now. Yes, things are great in the economy now, but rising interest rates and inflation are likely to change that down the road.


Economic numbers were excellent again. The weak spot was retail sales that rose +0.1% versus expectations of a +0.6% rise. However, Gross Domestic Product (GDP) was +3.5% annualized versus expectations of a +3.3% rise and payrolls came in at 250,000 jobs added, 60,000 ahead of expectations. Numbers for unemployment are at levels not seen in 50 years. This is all great news for the U.S., but again, the market is typically looking at next year’s economy and is not very interested in what’s happening today. A key feature of the payroll report was that hourly wages were more than 3% higher over the last year. Inflation may be showing up after a 10-year break.


Overall, the economy is excellent, but for the first time in years, we are looking out and seeing more headwinds than tailwinds. If you had us pick one simple thing to watch, it would be the

Federal Reserve. It is always a question of, “Are they adding money, or are they taking it away?” Currently, they are taking money out of the system. This doesn’t mean we have to experience a hard landing, but the longer-term picture for the market is that the tide may be starting to move out.


Below we see a chart of the S&P 500 Index going back to the 2009 low. We still have an uptrend, and this could just be a pause while the Fed gets inflation cooled down. However, we would continue to advise caution and note that moving some money off the table during rallies may be a good strategy in the long run.







Disclaimer: Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of securities. Investments involve risk and are not guaranteed.