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Morning Market Commentary for Q3 2022

The 3rd quarter was full of mixed emotions and uncertainty as we experienced a bear market rally during the first half of the quarter. Sentiment turned bearish in the second half of the quarter when the Federal Reserve persisted in raising rates to combat inflation. The S&P 500 dropped by another -5.3% for the quarter as it closed down -24.8% for the first nine months of the year. The Dow Jones Industrial Average followed suit with a -6.7% drop knocking it down by -20.9% for the year.  The tech-heavy NASDAQ had the most modest loss of the quarter as it fell -4.1%, but also its Year-to-Date loss of -32.4% was the worst of the bunch.     

Inflation & The Fed

One of the major headlines during the 3rd quarter was the rise in inflation. The Consumer Price Index report in July confirmed that inflation continued to climb as it hit 9.1%, the highest increase since November 1981. This level of inflation confirmed the Federal Reserves’ need to be more aggressive with its rate hikes. It increased the Fed Funds rate by 0.75%, a historic back-to-back 0.75% increase. Throughout the quarter, inflation decelerated slightly, which opened the gates for The Fed to continue to be aggressive. The Fed continued to state that this economy can withstand “some pain” while they fight to bring down inflation. These remarks were extremely hawkish, and the market continued to fall through September to a new bear market low, and brought us to the worst month for the markets since March 2020.

Earnings Annoucements

A glimpse of positivity during the 3rd quarter was Earnings announcements from leading industries. Earnings grew by 6%, mainly propped up by the Energy sector which saw massive price increases during the quarter. Investors believed that companies were able to withstand these economic headwinds they were facing, leading to a significant rally during the first half of the quarter. Earnings estimates quickly changed in September as companies such as FedEx preannounced that they were going to miss estimates substantially. This was due to macro headwinds from consumer demand to supply chain issues that continue to ripple from the effects of the Covid pandemic and rising inflation.

Fixed Income

We have begun to see attractive alternatives to stocks in the fixed-income market as ways to generate income with risk-free short duration treasuries ~4.1% and long-term investment grade corporate bonds ~5-6%. We believe these are great places to invest our cash while we wait for the market to find its stability. We will continue to monitor CPI data as they continue to report each month and we anticipate the Fed’s reaction to this new data.

As you read the above, we would not be surprised if you were left with more questions than answers. Is inflation going to come down? Is the Fed being too aggressive with its rate hikes? Is a recession looming on our doorstep? These are questions we discuss daily within our office and tirelessly analyze and strategize how to invest our clients’ hard-earned assets during these turbulent times. Having a trusted financial partner is essential to make sure you are taking pivotal steps in a recessionary environment to not make emotional decisions during a very emotional time. 


Has your advisor talked to you about Series I Savings Bonds? Yielding 9.62%? Give us a call to learn more about how you could benefit from purchasing a Series I Savings Bond at (410) 823-5442 or email [email protected]

Chesapeake Financial Advisors is a fee-only financial planning, investment advisory, and tax planning firm with offices in Towson, Columbia, Frederick, and Chevy Chase Maryland.

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