18 Sep 2022

Hello reader!

The stock market had a rough last week as it began to adjust to the possibility of more entrenched inflation that will require a prolonged period of restrictive policy and interest rate hikes. Inflation readings came in higher than expected leading to a resetting of expectations. Added to that was the lowering of guidance from the economic bellwether FedEx, which sounded the economic alarm bell for a rapidly spreading global slowdown. The Dow Jones Transport index, a relatively good proxy for a quick read of the nation's economic health, made a new low last week. Other broader market indexes will likely do the same including the small cap indexes.

This week the key market event will be the Federal Reserve's (FED's) interest rate meeting on Sep 20 and 21. While a 75 basis point increase appears to be very much locked-in, the press release commentary, the economic projections, and the press conference will provide valuable guidance on the path of future rate hikes and the stock market's direction. There are signs the FED will have to go tighter for longer and its impact on stocks was recently discussed in the blog post here.

The small cap indexes dropped about 4% last week on concerns that multiple rate hikes will be required that will push the economy toward a recession. The performance was a little better than the broader market which had declines of 5% to 6% for the S&P 500 and the Nasdaq Composite indexes. Small cap stocks will generally struggle in a bad economy. Some segments can outperform in a slowing economy once there is more clarity on the path of interest rates.

The model portfolio remains unchanged at this time. Adjustments are possible based on the FED's guidance and market conditions. The next monthly edition will be published on Oct 2.

For any questions, kindly contact us at support@GraycellAdvisors.com.

Sincerely,
Graycell Advisors

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