Treasury yields continue to climb
Bond yields continued to move up in the 3rd quarter as the Fed continued to raise rates. The yield on 10-year U.S. Treasuries rose 0.82% in the 3rd quarter, from 2.98% at the end of June to 3.80% at the September close. So far this year, the Fed has hiked rates 3.0% in an effort to bring inflation under control, including a 0.75% rate hike in September.
Corporate earnings projections dip
After a steady climb in corporate earnings projections, expectations took a step back in the 3rd quarter as the economy slowed. The 12-month advanced earnings per aggregate share projection for S&P 500 companies dipped 0.18% in the 3rd quarter but is still up 4.46% year to date.
Forward P/E ratio declines
With the stock market tumbling about 25% this year, the forward price-earnings ratio (P/E) of the S&P 500 continued to trend down in the 3rd quarter, from 15.80 at the end of June to 15.15% at the September close. The P/E has dropped 6.18 from the 2021 closing level of 21.33.
Dollar moves up versus Euro and Yen
The dollar is at a 20-year high relative to the world’s other major currencies. The Euro depreciated 6.29% versus the dollar in the 3rd quarter, with the war in Ukraine impacting the European economy. So far this year, the Euro has depreciated 8.56% versus the dollar.
The dollar was up 6.54% versus the Yen in the 3rd quarter and up 25.70% versus the Yen through the first nine months of 2022. The drop in the relative value of the Yen has been attributed to a loose monetary policy by the Bank of Japan versus an intensive tightening policy by the Fed.
Oil prices retreat
After reaching a high of well over $100 a barrel, oil prices finally dropped in the 3rd quarter over rising concerns of a potential global economic slowdown. West Texas Intermediate, a grade of crude oil used as a benchmark in oil pricing, dropped 15.48% in the 3rd quarter, from $105.76 at the end of the 2nd quarter to $79.49 at the September close.
But OPEC+, a consortium of oil-producing nations, announced plans recently to cut production quotas by two million barrels a day beginning in November, which could drive oil prices back up again.
Gasoline prices at the pump also declined significantly in the 3rd quarter, from a national average of $5.11 per gallon at the June close to $3.83 at the end of September – a 24.36% decline for the quarter. However, through the first nine months of 2022, gasoline was still up 13.54% from its 2021 closing price of $3.38 per gallon.
Gold prices slip
Despite high inflation, gold prices moved lower in the 3rd quarter, dropping 7.49%, from $1,807.30 per ounce at the end of June to $1,675.00 at the September close. Year to date, gold is down 8.56% from its 2021 closing price of $1,828.60.
International equities fall
With the war in Ukraine continuing to be a drag on the European economy, international equities followed the lead of U.S. stocks in the 3rd quarter, as the MSCI EAFE Index dropped 10.01%. The index dropped from 1,846.28 at the end of June to 1,661.48 at the September close. Year to date, the index is down 28.88%. (The MSCI EAFE Index tracks developed-economy stocks in Europe, Asia, and Australia.)
What’s ahead for the economy and the markets? See: 4th Quarter Market Outlook, The end of the bear market hinges on these 4 key factors, by Steve Lowe, Chief Investment Strategist, Thrivent Asset Management