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What is Driving the Stock Market Gains?

Listen to Best in Wealth Podcast Episode 210

What question am I asked the most? It is usually along the lines of: “What do you think the stock market is going to do? When will we be out of this horrible downturn? When will things turn around?” These are the questions I will try and answer in today’s episode of the Best in Wealth podcast! 

Outline of This Episode

  • [1:22] What question am I asked the most?
  • [3:07] Reminder: We do not have a crystal ball 
  • [4:54] What has happened since the 4th quarter? 
  • [7:27] Why investors are feeling bearish
  • [8:48] What the data is pointing toward
  • [13:45] How we invest, bear or bull market

Why I am sharing this piece

My company, Fortress Planning Group, brought on a new partner in March—Brian Cayon. He is a Certified Financial Analyst (CFA) and a Certified Public Accountant (CPA). Brian recently wrote a piece about where the stock market is headed. 

But let’s be clear here—we do not have a crystal ball. The economy is impacted by thousands of things, some things we cannot be aware of. You should not listen to anyone who says where the stock market is headed next with 100% certainty. 

But the reason I want to share the piece Brian wrote is because it is a message of hope. Let’s dive in!

What has happened since the start of the 4th quarter? 

After a horrible year, the financial markets have seen a significant rally in the last two months. In October and November, the S&P 500 was up over 14%. The MSCI Index (foreign stocks) is up over 15%. The Aggregate Bond Index is up 2.33% quarter-to-date. Is this nothing more than a bear market rally, when you see a solid month before another market drop?

After all, we saw this in the first month of the third quarter. While this could be a bear market rally, Brian believes that this rally is justified. Why? Because of the improved outlook on inflation. The Feds response to inflation is the single biggest driving force to the 2022 decline in the financial markets. 

Why investors are feeling bearish

The general consensus among investors is this: inflation is sticky and will remain elevated for years (until it falls to a target of 2% per year). Others think the Fed will not slow rates until inflation nears the target of 2%—or something breaks. Still others think the US Economy is tipping into a recession. They do not see a meaningful recovery until after we have a recession. But what if they are wrong? 

What the data is pointing toward

Inflation is already breaking to the downside and is now being reflected in the hard data. The October CPI print slowed to a 3–4% annualized inflation rate. The November print is expected to be similar. The Fed has also acknowledged softening inflation data, which means they might slow rate hikes. December could be the last hike (expected to be half a percent). 

The labor market has slowed considerably, without a big rise in unemployment (over 200,000 jobs were added last month). The US economy is resilient and consumer spending remains robust. Corporations have absorbed rising costs without much demand destruction or a major hit to earnings—so far. 

In the last two months, the data has improved. But investors are still bearish. This is shown in investor surveys, fund flow data, and fund manager surveys. The Bank of America survey shows that the risk appetite is the lowest it has ever been. But none of this is surprising. Why? Learn more in this episode of the Best in Wealth podcast!

Resources Mentioned

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Podcast Disclaimer:

The Best In Wealth Podcast is hosted by Scott Wellens. Scott Wellens is the principal at Fortress Planning Group. Fortress Planning Group is a registered investment advisory firm regulated by the Securities Act of Wisconsin in accordance and compliance with securities laws and regulations. Fortress Planning Group does not render or offer to render personalized investment or tax advice through the Best In Wealth Podcast. The information provided is for informational purposes only and does not constitute financial, tax, investment or legal advice.