Euclid Investment Advisory Blog

Review & Analysis at Close of 3rd Quarter 2022

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Market Commentary

We are not alone in experiencing a decline in value. Of the 2,750 ETFs and models listed in the U.S. (excluding leveraged and inverse ETFs) as of the end of Q3, only 6% had positive returns YTD through Q3 2022. Of the eleven S&P 500 sectors, only Energy had positive returns +31% YTD. The market tried to break out upwards three times this year only to fall back, making lower lows. Each time the market thought deteriorating economic indicators might lead the Fed to pivot or pause the rate hikes. The markets had sharp selloffs afterward when Fed speakers maintained their hawkish tone.

The Fed's continuation of rate hikes and tough talk in fighting inflation, slowing US economic growth in addition to economic and geopolitical concerns in Europe and the soaring U.S. Dollar all combined to drive losses across asset classes. Central banks globally are following the Fed's lead in raising rates.

With Treasury yields rising across the curve, U.S. fixed income index performances were negative YTD through Q3; e.g., iShares 7-10yearTreasury Bond -15.65%, iShares Corporate Bond -21.24%, even iShares 1-3 year Treasury Note -4.53%. The classic 60/40 balanced index fund fell 20.75%, Russell 2000 Small caps fell 25.3% and Emerging markets fell 28%.
S&P 500 sector returns YTD through Q3:

Energy +31.01%, Utilities -7.87%, Consumer Staples -13.07%, Health are -13.07%, Industrials -21.45%, Financials -21.95%, Basic Materials -24.66%, Real Estate -30.10%, Consumer Discretionary -30.21%, Technology -31.56%, and Communication Services -38.19%.

During periods of inflation, typically there is a rotation into assets such as Real Estate, Basic Materials, and Health Care. Not this year.

When will this storm end? We have been through Bear markets before and patiently appreciate that they do end.

The Market is said to look to economic conditions eight to nine months ahead. At some point, we will have run out of sellers and short sellers. Some event or condition will spark massive buying and short covering as the markets lift off, anticipating better days.

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