October was a favorable month for stocks and provided some respite for an otherwise very tough environment for both stocks and bonds.
The stock market performance in October follows extreme levels of pessimism during September – an important reminder that decisions made during periods of volatility can result in missing out on a rebound.
The October rebound may very well be temporary, however there are some potentially sustainable developments that could help support asset prices.
The market may have begun to look beyond the current inflation and interest rate environment toward 2023 – remember, the stock market is a leading indicator (meaning it can be viewed as a forecast of future economic activity). If inflation continues to decline in coming months, the Federal Reserve may slow or stop raising interest rates which would likely be a positive for stock prices.
In addition, markets have historically responded favorably to mid-term elections and the opportunity for a course correction on policy and representation in congress.
In fact, since 1950 stocks have had a positive return one year after the mid-term election every time – with an impressive average of almost 15%.*
We have often said that stock markets tend to be indifferent about the results of U.S. elections. With a split government, the predictability that gridlock brings is the market’s favorite outcome.
This year has been very challenging, especially for conservative investors. With volatility and emotions running high, investors need to adhere to a clear-eyed view of market history and a sound financial plan.
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*Source: LPL Research