The S&P 500 gained 8.1% in October as the stock market rebounded sharply off September lows. The month’s leaders were well-established, dividend-paying stocks, many of which are listed on the Dow Jones Industrial Average, an index that gained more than 14% on the month.
With the backdrop of high interest rates and accelerating infrastructure spending, sectors including Energy (+25.0%), Industrials (+13.9%) and Financials (+12.0%) performed well and experienced above-market gains. Many companies in these sectors pay a growing dividend, which has become a valued source of return during this year’s volatile stock market.
Conversely, high interest rates and a lack of consumer-focused fiscal spending are hurting the Consumer Discretionary (+0.2%) and Communication Services (+0.1%) sectors. One area hit particularly hard was the digital advertising industry, which boasts many of the largest companies in the world. As rising costs strain household budgets and consumers spend less time online post-COVID, companies like Meta/Facebook and Alphabet/Google have experienced significant declines. These stocks have fallen 75% and 35% from their respective all-time highs. Fortunately, we have very little exposure to these companies in our portfolio.
As we enter the final months of 2022, we expect the U.S. mid-term elections and upcoming Federal Reserve interest rate meetings to weigh heavily on year-end returns. As we noted last month, the conclusion of the mid-term elections is generally a positive time for near-term performance, and at the very least we will be happy to see a break from political advertising. Additionally, Federal Reserve meetings in early November and mid-December will provide key looks into the future of interest rate policy. Inflation has remained stubbornly high throughout year, and any commentary from the Federal Reserve that signals progress on that front would be welcomed by investors.
We hope that you and your family have a wonderful Thanksgiving and we remain grateful for the opportunity to work with you. Please do not hesitate to reach out at any time with questions or concerns.
Important Disclosures: Past Performance is no guarantee of future results. All investments carry some level of risk. The S&P 500 Index is an unmanaged, market capitalization weighted index of 500 common stocks widely regarded to be representative of the US market in general. Russell 2000® Index (U.S. Small Caps): Measures the performance of the 2,000 smallest companies in the Russell 3000®Index, which represent approximately 10% of the total market capitalization of the Russell 3000® Index. Russell Midcap® Index: Measures the performance of the 800 smallest companies of the Russell 1000® Index, which represents approximately 36% of the total capitalization of the Russell 1000® Index which is a mid‐cap index. MSCI EAFE Index: Measures the equity market performance of developed markets outside of the U.S. & Canada. MSCI EM Index: Captures large and mid cap representation across 24 Emerging Markets countries and covers approximately 85% of the free float-adjusted market capitalization in each country. Bloomberg U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. Indices are unmanaged and direct investment is not possible. The Bloomberg U.S. Intermediate Government/Credit Bond Index tracks the performance of intermediate term U.S. government and corporate bonds. Indices are unmanaged and direct investment is not possible. The opinions expressed are those of the author and not necessarily those of Robert W. Baird & Co. Incorporated. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNERTM and CFP® in the U.S.