The Dow Jones Industrial Average rallied by over 14% in the month of October. It was the best month for the index since January of 1976 and the fourth best monthly return for the Dow going back to the mid-1960s.
We’ve referred to the chart before, but the last month was another excellent reminder of the reason why we do not recommend timing the markets. Missing only a few days can impact long-term returns in a considerable fashion and often times the best days cluster around the worst.
Impact of being out of the market
The rest of the major equity market indexes were up for the month as well with the S&P 500 returning 8.1% and mid- and small-cap stocks rising by 10% to 12%. Year-to-date, the S&P 500 is down 17.7%. The S&P MidCap 400 and SmallCap 600 are down 13.27% and 13.66%, respectively.
Foreign stocks did not fare as well, highlighting the notion that even though the USA is facing several headwinds, compared to the rest of the world our problems are perhaps less pressing. The MSCI EAFE was up 5.3% in October but remains down 25.1% so far in 2022. Emerging Markets, as measured by MSCI, were off by 3.2% during the month, bringing their year-to-date return to -31.2%.
Bond yields continue to remain at or near their highest levels over the past decade. The Federal Reserve remains steadfast in their commitment to bring inflation back down to acceptable levels as evidenced by the fourth consecutive 0.75% interest rate hike in early-November. The result has been a yield curve that is extremely “flat,” but with higher yields available to investors.
The market has an odd tendency to establish patterns. We fully understand that correlation does not equate to causation. Every time period has its own unique set of facts and circumstances. However, with election day finally upon us it’s worth pointing out the fact that the market has never had a down year in the 12-months following a mid-term election going back to 1950. Another good reminder that even if you aren’t entirely satisfied with the outcome, history is on the side of keeping politics and investing separate.
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