• October brought about the much-anticipated FANG earnings and outlook. Only Netflix managed to beat consensus on the back of better subscriber growth. Facebook (Meta), Amazon and Google earnings all came in well below consensus with the two former tech giants providing weaker guidance.

• On the back of FANG earnings #1 ranked equity linked strategist (Marko Kolanovic from J.P. Morgan) lowered his 2023 earnings from up 8% to flat and turned “cautious” relative to his consensus in the summer. We believe that this potentially starts a new trend in the Street`s S&P 500 2023 earnings revisions.

• October brought about a roughly 11 % technical rally in the S&P 500 spurred on by potential “pivot language” at the Fed next meeting in early November. It’s important to remember that bear market rallies can be vicious and have been the hallmark of previous bear markets.

• On the international front we had the conclusion of China’s 20th Party Congress. Following the meeting, the Hang Seng Index dropped to its lowest P/E ratio is recorded history – 5 (lower than during the 2009 crisis). Only ones in history has the S&P traded at this multiple in 1918. At the start of the 1982 bull market the P/E ratio was 7. On a basis of valuation, one of the largest economies is trading at a deep discount. As, Kolanovic put it Chinese equities are “disconnected from fundamentals”.

Our Thoughts

2022 has be one of the most volatile years on record, driven primarily by an unprecedented move in rates and a change in what investors were willing to pay for stocks now that bond yields are starting to look more attractive. In October, we finally started to see some cracks emerge in some of the bellwether mega cap tech stocks that have been the driver of growth for the past decade.

Many of these companies reported guidance well below consensus and are now striking more pessimistic tones about the year ahead. As we start positioning portfolios for 2023, it’s important that we remember that a very real threat of a recession still looms.

If recession fears do materialize in 2023 ( and we believe that the risks continue to gain momentum), a focus on companies with strong balance sheets, that pay dividends and have proven their ability to generate strong free cash flows in this environment should help us get through the volatility we may continue to see. A focus on total return via dividends, growth and income should play an important role throughout 2023.