Weekly Market Guide - Butler Financial, LTD
How will midterm elections impact the market? - October 28, 2022

Resources

Weekly Market Guide

Review the latest portfolio strategy commentary from Mike Gibbs, managing director of Equity Portfolio & Technical Strategy.

Short-Term Summary

Volatility re-entered the market in recent days, as the S&P 500 has now given back 7% of its 44% gain from the March 23rd lows. Strength from the Technology stocks masked some internal deterioration earlier this week, as the Nasdaq composite was able to break out to new all-time highs while the average S&P 500 stock traded lower. A much-needed consolidation in the market then spiraled into the largest 1-day loss since March today (-5.9%), as investor complacency had gotten elevated. We remind you that pullbacks are normal (and to be expected), especially following the extremely rare up-move experienced over the past 50+ days.

We view this as a necessary pullback for the market to digest its gains, as the fundamentals can begin to catch up to price. Last week, we highlighted the 2009, 1982, and 1975 periods as the only other three instances with 25+% up-moves in a 50-day period since the 1930s. All of which were experienced coming out of recessionary bear markets, and were followed by a 1-2 month stall with a 6-7% pullback within. We would not be surprised to see a similar trend occur now as the rally “cools off.” Investor positioning has become complacent, and there are several items on the short term agenda that can spark volatility- for example, the spread of the virus with the economy re-opening, battle on next fiscal stimulus bill, and preparation for Q2 earnings season. The market remains overbought, and initial levels of support are seen in the 2895-3013 area (would be 7-10% pullback from Monday’s recent high). More pressing headlines (to alter the narrative) are likely needed in order to push the S&P 500 considerably lower than this range.

As this pullback plays out, we would use it opportunistically to accumulate favored sectors and stocks. We remain positive on the longer term opportunity, and continue to view the positives (i.e. enormous fiscal and monetary response) as outweighing the potential negatives (i.e. election, US/China trade rhetoric, virus resurgence). Also on a technical basis, extreme rallies to overbought conditions (as experienced since the March lows) are often indicative of above average returns over the next 12 months. Upside to our year-end base case S&P 500 price target (3111) will be much more attractive following a pullback. For example, if the S&P 500 were to trade to 2895, upside to this target would be 7.5% before dividends. Beneath the surface, the more cyclical areas (i.e. small caps, financials, industrials, consumer discretionary) are likely to be more volatile due to their more volatile earnings streams in the current environment, whereas the large technology-oriented and health care companies should be more stable. Tactically, we remain overweight technology, health care, and communication services; but believe this pullback will also create a good buying opportunity in those more cyclical areas for the longer term recovery.

View full PDF


IMPORTANT INVESTOR DISCLOSURES

This material is being provided for informational purposes only. Expressions of opinion are provided as of the date above and subject to change. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct.

Links to third-party websites are being provided for informational purposes only. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any third-party website or the collection or use of information regarding any websites users and/or members.

This report is provided to clients of Raymond James only for your personal, noncommercial use. Except as expressly authorized by Raymond James, you may not copy, reproduce, transmit, sell, display, distribute, publish, broadcast, circulate, modify, disseminate, or commercially exploit the information contained in this report, in printed, electronic, or any other form, in any manner, without the prior express written consent of Raymond James. You also agree not to use the information provided in this report for any unlawful purpose. This report and its contents are the property of Raymond James and are protected by applicable copyright, trade secret, or other intellectual property laws (of the United States and other countries). United States law, 17 U.S.C. Sec. 501 et seq, provides for civil and criminal penalties for copyright infringement. No copyright claimed in incorporated U.S. government works.

Index Definitions

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.

The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ.

The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market.

The MSCI World All Cap Index captures large, mid, small and micro-cap representation across 23 Developed Markets (DM) countries. With 11,732 constituents, the index is comprehensive, covering approximately 99% of the free float-adjusted market capitalization in each country.

MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 21 developed nations.

MSCI Emerging Markets Index is designed to measure equity market performance in 23 emerging market countries. The index’s three largest industries are materials, energy, and banks.

Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.

International Disclosures

For clients in the United Kingdom:

For clients of Raymond James Financial International Limited (RJFI): This document and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed, being persons who are Eligible Counterparties or Professional Clients as described in the FCA rules or persons described in Articles 19(5) (Investment professionals) or 49(2) (high net worth companies, unincorporated associations, etc.) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended)or any other person to whom this promotion may lawfully be directed. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons and may not be relied upon by such persons and is, therefore, not  intended for private individuals or those who would be classified as Retail Clients.

For clients of Raymond James Investment Services, Ltd.: This document is for the use of professional investment advisers and managers and is not intended for use by clients.

For clients in France:

This document and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed, being persons who are Eligible Counterparties or Professional Clients as described in “Code Monetaire et Financier” and Reglement General de l’Autorite des marches Financiers. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons and may not be relied upon by such persons and is, therefore, not intended for private individuals or those who would be classified as Retail Clients.

For clients of Raymond James Euro Equities: Raymond James Euro Equities is authorised and regulated by the Autorite de Controle Prudentiel et de Resolution and the Autorite des Marches Financiers.

For institutional clients in the European Economic rea (EE ) outside of the United Kingdom:

This document (and any attachments or exhibits hereto) is intended only for EEA institutional clients or others to whom it may lawfully be submitted.

For Canadian clients:

This document is not prepared subject to Canadian disclosure requirements, unless a Canadian has contributed to the content of the document. In the case where there is Canadian contribution, the document meets all applicable IIROC disclosure requirements.

Broker Dealer Disclosures

Securities are: NOT Deposits • NOT Insured by FDIC or any other government agency • NOT GUARANTEED by the bank • Subject to risk and may lose value

Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. Raymond James Financial Services, Inc., member FINRA/SIPC. Raymond James® is a registered trademark of Raymond James Financial, Inc.

Other posts you might like
ButlerFinancial
Start fresh with your financial planning this winter

Family & Lifestyle Review your eligibility for benefits programs and get organized for the year. Winter...

read more
ButlerFinancial
Market forecasts

Markets & Investing December 05, 2022 Drew O’Neil discusses fixed income market conditions and offers...

read more
ButlerFinancial
The labor market is dead, long live the labor market

Economy & Policy December 02, 2022 Chief Economist Eugenio J. Alemán discusses current economic...

read more