Key changes from September report:
- Downgrading financials view to negative from neutral.
- Upgraded our view of duration to neutral
- Lowered S&P 500 Year-End Fair
- Value Target to 4,000-4,100 from 4,300-4,400.
Investor sentiment was hit from multiple directions in September, but fears that a more hawkish Federal Reserve (Fed) would drive a hard landing for the U.S. economy following disappointing August inflation data was the top cause of the market’s struggles. Surging interest rates, a likely recession in Europe, and concerns about a potential U.K. currency crisis also contributed to a tough month for stocks. The S&P 500 Index tumbled 9.3% in September, temporarily breaking below the June 2022 closing low.
The index has lost 23.9% year to date through September 30.
Core bonds, as measured by the Bloomberg Aggregate Bond index, lost 4.3% during the month as Treasury yields were steadily higher in August. The belief by the Fed that short-term interest rates need to continue to go higher and stay there pushed Treasury yields higher during the month.
The Strategic and Tactical Asset Allocation Committee (STAAC) upgraded its view of duration to neutral. Now that interest rates have moved higher, we believe opportunities in fixed income have improved and are looking to add back to certain areas within fixed income that may benefit.
The STAAC Committee’s revised S&P 500 year-end fair value target of 4,000-4,100 is based on a price-to earnings ratio of 17.5 times the Committee’s 2023 S&P 500 earnings per share forecast of $230.
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All index data from FactSet.
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