On this episode of KayneCast, Jordan Greenhouse, Managing Director, Senior Client Portfolio Manager and Relationship Manager for Kayne Anderson Rudnick, discusses the Q3 2022 market review with Doug Foreman, CFA, Chief Investment Office, Portfolio Manager.
Q3 Stock Market Review Indicates Markets Remain Volatile in 2022
The market outlook for Q3 2022 began with the same concerns as Q2: geopolitical volatility and fears of a recession continued to rattle the market.
Foreman notes the equity market has seen a tremendous amount of rotation all year, with different groups performing poorly from one quarter to the next or even within the same quarter. The equity market outlook for 2022 has been a wild ride, with each quarter producing what would usually be a year’s worth of change.
Feds Aggressive Response to Inflation Causes Q3 2022 Upheavals
Foreman’s Q3 stock market commentary begins by observing the quarter’s resurgence of low-quality companies leading high-quality companies, with recession fears initially dropping until the release of the August CPI, which spooked the market. In response, we saw increased Fed hawkishness, which will likely result in further interest hikes before the end of the year. Increased recession fears negatively impacted the dividend growth sector, the worst-performing sector for the quarter.
The actions of the Fed and global central banks have slowed demand, while consumer sentiment has weakened. The yield curve inverted even further in Q3, which is the market’s interpretation of the increased risk of a hard landing. Many business meetings are discussing the “R-word” openly, and the US GDP was down in Q1 and Q2, technically putting the economy into a recession.
Inflation Data Shows Signs of Improvement
Foreman believes the economy will continue to slow, with a mild recession likely sometime next year. Despite this, he notes inflation data is moving in the right direction, with gasoline, used cars, and even rent beginning to drop in price. As the market sees improved inflation data, the stock market will start to do better even if short-term fundamentals continue to look weak to investors.
As Foreman says, 2022 has been an unusual year, with no single equity emerging unscathed. KAR’s strategy remains the same in a volatile market as it does in a placid one: to own quality businesses with strong balance sheets and good cash flow, which can ride out bad times and thrive in a stronger market.
Listen to the podcast above to learn more about market influences in Q3 2022, and join us in Q4 for another market performance review.
Revisit our past quarterly recaps:
This information is being provided by Kayne Anderson Rudnick Investment Management, LLC (“KAR”) for illustrative purposes only. Information contained in this material is not intended by KAR to be interpreted as investment advice, a recommendation or solicitation to purchase securities, or a recommendation of a particular course of action and has not been updated since the date of the material, and KAR does not undertake to update the information presented should it change. This information is based on KAR’s opinions at the time of publication of this material and are subject to change based on market activity. There is no guarantee that any forecasts made will come to pass. KAR makes no warranty as to the accuracy or reliability of the information contained herein.