Hope you are all doing well. The numbers released this week were great, the market was not. U.S. stock indexes failed to get any lift from earnings season and a strong quarterly GDP report. The S&P 500, the NASDAQ, and the Dow each fell more than 2% for the week. It was the sixth negative week out of the past eight for the S&P 500. Stocks entered correction territory last week, down about 10% from their peak in late July. With the World Series going on this week, I have broken down this week’s update using quotes from baseball’s all time hit leader, Pete Rose.
Every time I step up to the plate, I expect to get a hit. If I don't expect to get a hit, I have no right to step into the batter's box in the first place.— Pete Rose
We have come to expect great things every time we get an earnings report from one of the mega cap tech stocks. The “Magnificent Seven” (Amazon, Apple, Alphabet, Meta, Microsoft, NVIDIA and Tesla) have powered the rally since last year’s bear-market low. The past couple of weeks they have also been the ones to drag major indexes lower. This is not because they are missing their mark because they continue to hit their projections. The market gets disappointed when they don’t dramatically exceed expectations, which is what we saw this week particularly with Alphabet and Meta. I would expect tech stocks to rally as we end the year. The earnings reports and subsequent conference calls gave me hope that the unprecedented growth in these companies can continue. This should be a time to buy not sell as I expect the tech stocks to rally. Anecdotally, since 1945 the market goes up 66% percent of the time in November (3rd best month for stocks) and 75% percent of the time in December (best month for stocks).
Somebody's gotta win and somebody's gotta lose and I believe in letting the other guy lose.— Pete Rose
This quarter’s GDP number was a big win for the Federal Reserve. We have been told by the television pundits that the U.S. economy is destined to lose. The Fed can’t possibly navigate this rate hiking cycle without causing a recession in the second half of 2023, we were told throughout all of last year. The pundits have lost. The US economy continues its resilience despite all the talk of recession. Gross Domestic Product (GDP) is how we measure the economy. It expanded at a 4.9% annual rate in the third quarter, above consensus expectations for around 4.7%. Consumer spending stayed strong, and the latest result marked an acceleration from the second quarter’s 2.1% pace. The rate hikes have yet to trigger a recession and the Fed could be nearing an end to the increases.
You'd be surprised how many shortcomings can be overcome by hustle.— Pete Rose
A year ago the path to 2% inflation seemed insurmountable but the Federal Reserve has continued to aggressively fight. Stronger than expected economic growth, impressive wage growth and low unemployment are all still present. Normally these factors would be causing prices to continue higher. The Fed’s rate hiking has been able to overcome these headwinds and keep inflation on a downward path. The core personal consumption expenditures (PCE) price index, which is the Fed’s preferred measure of inflation, ticked down to 3.7% in September from 3.8% in the prior month. That is still way above the Fed’s 2% target, which is why I think we have one last rate increase coming. However, we have come a long way from core inflation’s peak last year at 5.6%. As I continue to reiterate, lower housing inflation will drive further improvement in the quarters ahead as mortgage rates are now over 8% and starting to quell demand.
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