Uncertainty continues to prevail; reasons for the lack of conviction center on eroding earnings growth projections, and the upcoming midterm elections, notes Sam Stovall, chief investment strategist of CFRA Research's The Outlook— and a participant in MoneyShow's Post-Election Virtual Expo on November 10-11. Register here for free.
After rising 8.8% month-to-date through October 28, the Fed doused the flame of optimism sparked by the expectation that the FOMC would hint at a possible softening of its hawkish forward monetary policy stance.
However, Fed Chair Powell put to rest the notion that a pause, let alone a pivot, was on the table. Higher for longer is now the mantra of the Fed’s rate tightening. Additionally, he shifted the markets away from focusing on the speed of rate hikes to the terminal rate, and the length of time it would remain there.
Action Economics now sees the Fed raising rates by 50 bps in December and February of 2023, with a final 25 bps increase in March for a terminal interest rate range of 5.00%- 5.25% before starting an easing cycle in late 2023.
Midterm election results should offer investors at least a temporary diversion to interest rate worries. Also, the projected decline in year-over-year CPI growth to 7.9% from 8.2% in September, and compared with the 9.1% peak in June, may allow investors to breathe a sigh of relief and resume the October rally.
In response to the rate tightening disappointment, all sizes and styles, along with 10 of 11 sectors in the S&P Composite 1500, fell in the week-to-date (WTD) period.
While the energy, industrials, and utilities groups were relative leaders, the communications services, consumer discretionary, and technology sectors slipped the furthest. In addition, only 13% of the 149 sub-industries were higher on the week, led by motorcycle manufacturers, oil & gas equipment & services, and specialized consumer services.
Representative companies from this list of S&P 1500 sub-industries with the best WTD returns are: H&R Block (HRB), Harley Davidson (HOG), Schlumberger Ltd. (SLB), Helmerich & Payne (HP), The New York Times Co. (NYT), Valero Energy Corp. (VLO), Everest Re (RE), and EOG Resources (EOG).