Nov 22, 2022 | insights

Tenet's Monthly Investment Commentary - November 2022

Strong Start to the 4th Quarter

Financial markets have roared back since the start of Q4, mainly driven by better-than-expected inflation news, with nearly all major stock and bond indices positive since October 1.  The Dow, Developed International (EAFE), and Small Cap Stocks (S&P 600) have led the way posting returns of ~15% or higher.  The S&P 500 was also in double digits with a nearly 11% gain, while major bond indices have also seen a boost due to falling yields driven by easing inflation.

November and December seasonals are bullish for the stock market, and a rally is further supported by falling yields from 10-year Treasuries. From a peak of 4.2% on October 24, Treasuries have fallen to 3.7%, pushing stocks higher. Rates could drop to as low as 3.5% – allowing the rally to continue and lifting the S&P 500 to 4150 (currently under 4000).

Inflation Showing Signs of Relief….FINALLY!

After several consecutive months of inflation numbers that continued to run as hot as expected (or worse), we finally had a surprise to the positive.  The recent CPI inflation report for October showed an increase of 0.4% for the month and 7.7% over the last year, better than the expected readings of 0.6% and 7.9% respectively.  When excluding volatile food and energy costs, Core CPI increased 0.3% for the month and 6.3% on an annual basis, compared with estimates of 0.5% and 6.5% respectively.  A drop in used vehicle prices helped the most along with apparel and medical services costs. 

What's even better news is that these results surpassed expectations even with shelter costs still running hot (0.8% increase for the month and 6.9% from a year ago) and energy prices showing their first increase in four months.  We still believe shelter costs, which makes up about 40% of CPI and is a lagging data point, will begin to fall in early-mid 2023.  In the meantime, this report is a big positive and hopefully this continues as a trend from here on out.

Source: Bureau of Labor Statistics (, Data as of 10/31/22)

Slowing Economic Growth But Consumers are Remaining Resilient

The U.S. economy grew at a 2.6% annualized rate in the third quarter. This reading follows consecutive negative quarters to start the year.  The growth came in large part due to a narrowing trade deficit, which economists expected and consider to be a one-off occurrence that won’t be repeated in future quarters. Overall, while the 2.6% rebound in the third quarter more than reversed the decline in the first half of the year, we don’t expect this strength to be sustained. In fact, given high inflation, slowing labor markets, rising interest rates, and tighter credit conditions, The Conference Board is forecasting that real GDP growth will be just 1.5% year-over-year in 2022.

Source: BEA, Sanctuary Wealth Chartbook (Data as of 10/31/22)

On the flip side, retail sales and consumer spending have continued to be incredibly resilient in the face of inflation and rising rates. Both measures have shown an increase of over 6% since this time last year. With the holiday season underway, we may see this trend continue as Americans are expected to take care of their holiday shopping.

Job Market Remains Robust

Why are consumers still spending despite inflation and Fed rate hikes? It’s because they’ve got jobs! Strong employment data is supporting the healthy consumer spending and initial jobless claims remain low.

This is not helpful to the Fed, though, who wants unemployment to rise to near 5% as part of their plan to bring down inflation. They also want to temper the wealth effect, meaning they want consumers to feel less confident about the value of their assets, thereby reducing their desire to spend. For the Fed, a little financial insecurity is a weapon against inflation.  

Corporate Profits Remain Solid

Overall, 94% of S&P 500 companies reported results for Q3 2022 thus far. Of these companies, 69% have beat EPS estimates; however, this is below the 5-year average of 77% as well as the 10-year average of 73%.  The blended earnings growth rate (actual and estimated results combined) for Q3 stands at is 2.2% today, compared to an earnings growth rate of 2.6% as of 9/30.  If 2.2% ends up as the actual growth rate for the quarter, it will mark the lowest earnings growth rate reported by the index since Q3 2020 (-5.7%).

In terms of revenues, 71% of S&P 500 companies have exceeded estimates, which is above the 5-year average of 69% and above the 10-year average of 62%.  The blended revenue growth rate for Q3 is 10.8% today, compared to a revenue growth rate of 8.7% as of 9/30.  If this 10.8% growth rate holds through the entire quarter, it will mark the seventh straight quarter with revenue growth above 10%.

Source Report: JP Morgan Guide to the Markets (Data as of 10/31/22)

What does this tell us?  While earnings are not as strong as in recent years, they have been resilient right along with the US consumer delivering steady results.  Even though the threat of a US recession is still on the table, there doesn't appear to be much of a recession in corporate earnings. 

Speaking of recession, here's an interesting stat: the number of S&P 500 companies using the word "recession" on earnings calls has actually DECREASED from the 2nd quarter to the 3rd quarter.  According to FactSet, they searched for this term in conference call transcripts of all S&P 500 companies and found that they cited "recession" 242 times in Q2.  For Q3, this number dropped fairly significantly to 179 times.  To be clear, analysts and companies are still mostly pessimistic in terms of Q4 outlooks (67% have issued negative EPS guidance - above the 5-year average of 60%), but this is still a positive data point on the surface.

Source: FactSet Earnings Insight (, Data as of 11/18/22)

Silver Linings of Higher Inflation & Rates

With high inflation and a rate-hiking Federal Reserve still in the limelight, there has been so much focus on the negative aspects (rightfully so), but we feel it is important to counterbalance that with some of the positives.  One of the main benefits of this environment is that you can now earn higher rates on fixed income investments.  For investors seeking a stable stream of income and/or more stability than equity markets, fixed income is finally starting to reward investors as a solid, conservative option.  Even better, many of the highest rates can be seen in SHORT-term fixed income.  As shown in the yield curve below, 0-3 year Treasuries are paying higher rates than their intermediate-term and long-term counterparts.  This can provide more flexibility and options for investors in the short-term.

Additionally, cash and cash equivalents, such as high-yield cash savings accounts, brokered Certificates of Deposit (CDs), and Treasury Bills, are all producing attractive yields of at least 3% or higher.  Brokered CDs and high-yield savings accounts include the benefit of FDIC-insurance (up to $250k), while Treasuries and Series I Savings Bonds are backed by the US Government providing extra layers of safety. 

Here is a breakdown of current rates (as of 11/18/22) for various short-term bond funds and cash equivalents that are now generating desirable rates:

Sources: Ally Bank, Synchrony Bank, Treasury Direct, YCharts

As we enter the final stretch of 2022, we will continue to watch financial markets closely and hope for a "Santa Claus" rally in equities to close out the year.  In the meantime, if you have any questions on these points and/or how they may relate to your portfolio strategy, please feel free to reach out to our team.  Happy Thanksgiving to you and yours!

Sources: YCharts, Bureau of Labor Statistics, Sanctuary Wealth Chartbook, Sanctuary Week Ahead, Bloomberg, CNBC, Wall Street Journal, JP Morgan Asset Management, S&P Global, Goldman Sachs, Bureau of Economic Research, Discover Bank, Ally Bank, Synchrony Bank, Treasury Direct, Census Bureau, Department of Labor, FactSet, The Conference Board

Registered Representative of Sanctuary Securities Inc. and Investment Advisor Representative of Sanctuary Advisors, LLC. Securities offered through Sanctuary Securities, Inc., Member FINRA, SIPC. Advisory services offered through Sanctuary Advisors, LLC., a SEC Registered Investment Advisor. Tenet Wealth Partners is a DBA of Sanctuary Securities, Inc. and Sanctuary Advisors, LLC.

The information provided in this communication was sourced by Tenet Wealth Partners through public information and public channels and is in no way proprietary to Tenet Wealth Partners, nor is the information provided Tenet Wealth Partner's position, recommendation or investment advice. This material is provided for informational/educational purposes only. This material is not intended to constitute legal, tax, investment or financial advice. Investments are subject to risk, including but not limited to market and interest rate fluctuations. Any performance data represents past performance which is no guarantee of future results. Prices/yields/figures mentioned herein are as of the date noted unless indicated otherwise. All figures subject to market fluctuation and change. Additional information available upon request.