November Student of the Market
Is the October Bounce in Stocks Durable?
Stocks bounced big in October even though interest rates went up. In October 2022, the return on U.S. stocks was 8.1% and the return on U.S. bonds was -1.3%. October 2022 was the 32nd best month since the start of 1950. October 2022 is the only month since 1950 in which stocks were up 8% or more and bonds lost over 1%.
Midterm Elections and Market Performance
There are generally muted returns leading up to midterm elections. The average U.S. stock performance in Q1-Q3 for presidential election years is 7.6%, for midterm election years is 0.9%, and for non-election years is 11.3%. The average U.S. stock performance in Q4 for presidential election years is 3.3%, for midterm election years is 6.5%, and for non-election years is 2.7%.
Stock Market Volatility
September 2022 was the 10th worst month for the S&P 500 since 1950. The 3-month period of April to June of 2022 was the 14th worst 3-month period for the S&P 500 since 1950.
Stock Market Returns
U.S. stocks historically average 10% per year, but they rarely finish a year at that level. The average annual return from 1/1/1926 to 9/30/22 for U.S. stocks in 10.1%. The 2022 YTD return for U.S. stocks is -23.9%. Between 1/1/26 and 9/30/22, there have been 6 years that had returns less than -20%, 19 years that had returns between 0 and -20%, 14 years that had returns between 0 and 8%, 6 years that had returns between 8 and 12%, 15 years that had returns between 12 and 20%, and 36 years that had returns over 20%.
Bear Markets and Recessions
Bear markets and recessions don't always go hand-in-hand. The average bear market performance with a recession is -47.3%. The average bear market performance without a recession is -26.0%.
Small Cap Stocks Outpacing Large Caps
Small caps have outperformed large caps over the last 9 months.
Inverted Yield Curve
The most reliable recession indicator is flashing for the first time in October. The 10-year U.S. Treasury bond yield minus the 3-month Treasury bill yield is -0.1% in October 2022.
Alternative Asset Class Performance
Historically, alternative asset classes do better when the return on "cash" is higher.
If you are interested in reading more, check out the BlackRock Student of the Market piece below.