The Stock Market State of the Union

November 07, 2022
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Today is election day. Millions of Americans will be partaking in their civic duty at the polls, and there is a lot to be decided. 36 out of the 50 states that make up the union will be voting for a new or incumbent governor. There are hotly contested races that could change the makeup of the House of Representatives. The fate of the Senate is also up for grabs today. There will undoubtedly be many changes to positions of power based on today’s election results. These changes have the power to make significant change in this country, for subjectively better or worse. No matter what side of the aisle you are on, the hope is that the officials elected today work to represent the constituents that elected them and work to improve the overall state of the Union. While the presidential State of the Union address is given historically in January or February, today I am going to give a bit of an update on the current state of the stock market.


Think of today’s blog as a bit of a time capsule. Something to look back on 6 months, one year, or many years from now to see how the future compares to the state of today. There are a few additional reasons why I am writing this today. The first reason is to see if history does in fact repeat itself. If you remember, two weeks ago I wrote a blog detailing what stock market returns have looked like following mid-term elections 1. Most of the time, 17 out of the last 19 election years, the market has had higher returns in the 6 months directly after the mid-terms than it did in the 6 months prior. While we cannot predict or guarantee the future, the midterms often give the markets a bit of a jolt of energy. This could be good news for short term investors specifically because we have not had a great 6 months or year for that matter. Let’s go through a snapshot of where we are in the stock market and the economy.


Year to Date Stock Market Returns


As of the writing of this blog, 11.3.2022., the S&P 500 index is sitting at 3759.69. As a quick reminder, the S&P index tracks the stock performance of 503 large companies and is seen as a leading indicator of market health and performance as a whole in the equity sector. The S&P started the year at 4766.18, which means the index has dropped 21.1% so far this year. The Dow Jones Industrial Average currently sits at 32,147.76 while it opened the year at 36,338.30. That is a loss of 11.5% so far this year. The Dow was helped out greatly last month as the 30 large companies that are the components of the index grew by a combined 13.95%. October’s performance was the Dow’s best since 1976. The NASDAQ has been hit the hardest this year. Currently the heavily tech focused index is sitting at a value of 10,524.80, while it closed the year at 15,644.972. That is a loss of 32.73% this year alone. This also means the index will need to gain 48.65% to simply recoup its losses. It has been a bad year for tech stocks and large company stock as well and everyone is hoping for a rebound going into 2023.

Inflation and the Federal Reserve


We have an inflation problem in this country. To be fair, the entire western world is having a problem with rising prices, but we’ll focus our problems here. There are a variety of reasons why we are having pricing increases. Read these blogs2 to see all that factors into inflation and why it is hitting us hard at the moment. The Federal reserve is trying to combat that inflation with interest rate hikes to get the population to stop borrowing and then spending money. As of yesterday, the Federal Reserve has once again raised interest rates by .75% and currently does not have plans of slowing down the economic tightening. Federal Reserve Chairman Jerome Powell mentioned that while they may consider the possibility of slowing rate increases in the coming months, the Fed is committed to doing what it takes to curb inflation3. These moves could in fact lead the U.S. economy into recession, if it isn’t already. According to Ycharts, the U.S. economy has a 23.07% to be in recession by this time next year 4. We have recently had a quarter of positive Gross Domestic Product growth, 2.6%, which followed the previous two quarters to start the year that both showed our GDP shrinking. While the future is definitely unknown, this is the current state of our stock market and economy. Let’s hope improvements are coming.

Today's song is a nod of gratitude to the men and women who serve our country and in turn preserve our right to vote in a free nation. Enjoy!

Song

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

 All investing involves risk including loss of principal. No strategy assures success or protects against loss.


1 https://www.provisioretirement.com/blog/how-do-the-midterms-affect-the-stock-market
2 https://www.marketwatch.com/
3 https://www.provisioretirement.com/blog/inflation-nation
https://www.provisioretirement.com/blog/the-power-of-powell
4 https://www.reuters.com/markets/us/fed-set-another-big-rate-hike-may-tamp-down-future-tightening-2022-11-02/
5 https://ycharts.com/indicators/us_recession_probability#:~:text=US%20Recession%20Probability%20is%20at,long%20term%20average%20of%2013.73%25.