Market Update 10/17/22

Mark Amstislavskiy

Major swings characterized the markets the week of Oct. 11 through Oct. 17 as investors responded to inflation numbers and corporate earnings reports.

Tuesday’s results were mixed after Bank of England Gov. Andrew Bailey announced that government aid for struggling pension funds will end Oct. 14. This was generally bad news for investors internationally as it suggested that U.K. pension funds will need to continue selling off assets.

Following the news, the Dow Jones Industrial Average rose 0.1%, while the Nasdaq composite and the S&P 500 lost 1.1% and 0.65%, respectively. Joining the two other indexes, the Nasdaq entered a bear market, which is characterized by a drop of 20% from a recent peak.

Inflation data released on Wednesday showed that the producer price index increased 0.4% from August to September, which is higher than the 0.2% that was expected. The minutes covering the Federal Reserve’s September meeting also highlighted the Fed’s concern over the stubbornness of inflation.

“Inflation certainly broadened out and entered into areas that were more sticky,” Kiran Ganesh, managing director at UBS Group AG’s chief investment office, told The Wall Street Journal.

Consequently, major indexes ticked down slightly, as the Dow and Nasdaq both lost 0.1% while the S&P 500 declined 0.3%.

Markets were highly volatile on Thursday. Stocks initially tumbled as investors continued to process unfavorable inflation data, but the closing bell ended the day heavily in the green.

Despite the largest increase in core index in decades, overall index increased 8.2% in September, a smaller jump than the ones seen in both June and August. The Dow, Nasdaq and S&P 500 all ended the day up 2.8%, 2.2% and 2.6%, respectively.

“The fact that you’re seeing some peaking out in inflation to where maybe we just don’t have to fight the Fed so much, people will feel comfortable buying in at these levels,” Den Genter, who is the CEO and chief investment officer at Genter Capital Management, told The Wall Street Journal.

Following the strong performance on Thursday, markets reversed again on Friday with the Dow, the Nasdaq and the S&P 500 shedding 1.3%, 3.1% and 2.4% respectively.

While corporate earnings reports pushed the KBW Nasdaq bank index down 1.4%, individual results for major financial institutions were mixed. JPMorgan Chase & Co. and Wells Fargo & Co. reported stronger-than-expected revenue figures, ticking up 1.66% and 1.86%, respectively. But Morgan Stanley fell 5.1% after earnings came in lower than investors had hoped.

The Dow ended the week up 1.34%, while the Nasdaq and the S&P 500 declined 3.1% and 2.37%.

Markets gained again on Monday, with the Dow up 1.86%, Nasdaq up 3.4% and S&P 500 up 2.65% to start the week. Despite a bleak recession outlook, investors were somewhat reassured by the resilience of corporate earnings in the face of interest rate increases.

Severe volatility in the markets reflects uncertainty about the future of inflation and the severity of monetary tightening. In the coming weeks, investors will keep an eye out for corporate earnings to determine their economic outlook and gauge recession risk.