It’s All About Inflation – October 2022

The stock market left investors in the dumps in the September 2022 quarter – with equity markets down 21-26% on a year-to-date basis through 09.30.2022.    

But as we all know a small beam of light becomes the most brilliant when it is the darkest. During the first two trading days the Dow Jones Industrial Average rallied 1,591 points. The US equity indices rose 6-7% in just two days.

Equity markets are trading on inflationary expectations and presumed FED monetary policy.

The September market rout was a result of the FEDs announcement at the end of August that it will continue its hawkish stance against inflation that may cause ‘economic pain”. Investor expectations shifted in the last few days and now believe the FED will pivot to a neutral monetary position in 2023 rather than 2024 as previously expected. We agree with this change in expectations and of course pleased the market rallied in early October.

We expect inflation to begin declining materially by March 2023, and the FED will pivot to a neutral policy position by mid-2023. We have not changed our position on this issue….

From our September 2022 Commentary – ”The US stock market headwinds of rising interest rates may remain until the first half of 2023 when we expect inflation to materially abate. Commodity prices have declined since June 2022 suggesting the aggregate price level may have peaked.  Once the calendar page 2023 turns, year-over-year inflation should decline.  This backdrop may give the FED reason to curtail raising interest rates, and depending upon economic growth, it may begin easing interest rates if inflation is constrained.”

We continue to believe the US stock market will recover from the current malaise by the second half of 2023.

Richard S. Lawrence, CFA / October 5, 2022


We recommend only to invest in the stock market with a long-term view (3+ years) and have cash available for emergencies and spending needs for the short term (1-3 years).