Q3, 2022, Quarterly Market Commentary

November 8 2022

Stock Market News

Economic Outlook

It was a stream of bad news in Q3. The Fed continued to raise interest rates, but we didn’t see inflation halt to a stop as mortgages reached their highest point since 2008. Higher rates mean tighter budgets for businesses and we’re seeing prices continue to rise as fear of a recession grows. Investor sentiment is trending downward as money continues to shift out of the stock market into other asset classes. We don’t see this as a bad thing, however, and point out the Great Recession as a comparative example. The height of investor fear typically proves to be the best time to invest. When consumer sentiment bottomed in prior market cycles, forward 3-month returns averaged over 7% with 88% of occurrences providing a positive return, forward 6-month returns averaged over 13% with 100% of occurrences providing a positive return, and forward 12-month returns averaged over 22% with 94% of occurrences providing a positive return. We do believe sentiment has reached a bottom and see sharp turnarounds as the inflation slows and investors put cash back into the market.


After the rough start for the first half of the year, stock and bond returns continued to wane as the third quarter came to an end. Our team wanted to dive deeper into two of the most common questions we’re being asked: why are the markets down? and where do we go from here?

The Economy & Stock Markets

The decline in the stock market this year can be attributed to three main factors: high inflation, interest rate increases, and growing economic uncertainty. The Fed has continued to raise rates to fight inflation with the housing market at the center of its target. These unprecedented set of rate increases have been the catalyst to the decline in the bond market, with 2022 having the worst start ever recorded so far.

The upcoming mid-term elections will bring up significant economic issues as both parties compete for voter support. Poor performance leading up to mid-term elections is no surprise. However, in 17 of the 19 midterms since 1946, the stock market has performed better in the 6 months following an election than it did the 6 months prior.

Bond Markets and Your Portfolio

Stock Market fluctuation is nothing new. We’ve seen market cycles and can understand the need for these conditions to stabilize the markets. Bond performance, on the other hand, is supposed to be the safe haven to turbulent markets. The negative performance in 2022 is a new twist to an investment policy that hasn’t previously been tested, and our team’s focus has been on how to best take advantage of these markets while providing the highest level of risk-adjusted returns to our clients.

Floating-rate bonds and international stock exposure are the best long-term solutions to these problems. Floating rate bonds aren’t nearly as affected by an increase in rates and still provide a yield to outpace inflation. Steering our focus away from US Markets, especially large-cap companies, provides an opportunity to achieve higher returns while the US faces uncertainty about a longer-term recession. We look to small-caps and alternative equities to bolster the portfolio until the tides shift and we can dive head-first back into stocks at discounted prices.

Keeping Things in Perspective

Zooming out and viewing the markets from 30,000 feet should provide confidence in the markets moving forward. There have been 7 instances where the S&P 500 has lost over 20% in a year, and 4 of those years were followed by 20% returns. While this year hasn’t been enjoyable for investors, we can view it as a healthy re-calibration for future returns. To quote Warren Buffett, “Be fearful when others are greedy, be greedy when others are fearful.”

Our portfolio management strategies focus on the long-term strength of various market sectors and analysis of short-term price movement to determine the sentiment of investors. By combining these, we have a pulse on the markets that can shift with the current economy while understanding the long time horizon needed for investment success. As we wade through these markets, look for small changes that can strengthen the core of the portfolio until the economy eases back to a comfortable position.

Please don’t hesitate to contact our team at hello@camtoledo.com or 419-464-7000.