Tech Slump Puts Rally in Sleep Mode

Tech Slump Puts Rally in Sleep Mode

On Oct. 12, the S&P 500 closed 25.4% below its Jan. 3, 2022, record high. Since then, the index has rallied about 7%. Was Oct. 12 the bottom of this bear market or is this just another head fake?

No one can say for sure. And the question really only applies to traders and market timers. For longer-term investors, continued purchases during bear markets tend to look pretty smart with time, even if they feel difficult in the moment.

Whether Oct. 12 was the bear’s bottom or not, the long-term prognosis for growth in economic activity—and, hence, corporate sales and profits—is good. You simply have to extend your outlook beyond the current week, month or quarter.

To that end, after two quarters of mild contraction, the U.S. economy expanded at a 2.6% annualized rate in the third quarter, according to today’s preliminary GDP data. That doesn’t necessarily translate to an all-clear on profits, though. So far, corporate earnings have been a mixed bag, with the big tech companies disappointing this week.

Here’s a more detailed account of what we’re focused on this week and why it matters:

  • It’s widely expected that Federal Reserve policymakers will hike the fed funds rate by 0.75% at their meeting next week. We’ll be watching to see what the Fed signals about future rate hikes. Wall Street opinion is split on how aggressive the Fed will be in December.
  • Today’s first estimate of third-quarter GDP showed a recovery, driven primarily by a resilient consumer. However, given the dollar’s increased strength, we think the net exports data (a key contributor to Q3 growth) is unsustainable in the short term. This is just one of numerous signals we’re watching that suggests we’re not out of recession’s way yet.
  • The yield curve has inverted on a few days this month, meaning short-term Treasury bills are yielding more than long-term Treasurys. Notably, on Wednesday, the three-month Treasury yielded more than the 10-year Treasury for the third time this month. An inverted yield curve has been an early recessionary warning sign in the past, but not a reason to sell stocks. It also doesn’t provide any insight into the severity or duration of the next recession.
  • The Conference Board Leading Economic Index (LEI), a compilation of 10 forward-looking components, is also signaling contraction. We’d note, though, that there have been false recession signals in the past from the LEI.
  • Turning to the aforementioned tech giants:
    • Microsoft posted its worst revenue growth in over five years in the third quarter and cautioned that personal computer sales may see further sharp declines.
    • Wednesday, shares of Alphabet (Google) suffered their worst day since March 2020 after the first-ever decline in YouTube ad sales.
    • Meta (Facebook) saw shares tumble more than 20% after reporting its digital ads sales had slumped, providing a lower-than-expected outlook for Q4 revenue. That stock, once a tech market darling, is down 70% this year.

Given the ubiquity of these tech behemoths in businesses’ current and future spending plans, these drops are another potential recessionary warning.

Taking the Housing Slide in Stride

Interim Chief Investment Officer Jeff DeMaso 

Here’s an attention-grabbing headline—Home Prices Are Falling Nationwide.

Just about any way you look at the data, the housing market is cooling. Home prices declined in August for the second month in a row and at the fastest monthly rate since December 2011. That’s understandable given that mortgage rates hit a fresh 21-year high this week—the 10th straight weekly increase, topping 7% today as we go to print. The result: The fewest weekly mortgage applications since 1997. Sales of existing homes have fallen for eight straight months, with September sales the worst since 2012 (not counting the lockdown months in COVID-19’s early days).

Falling home prices conjure memories of the global financial crisis. But I don’t think we are on the verge of another housing collapse. The housing bubble of the mid-’00s was fueled by gimmicky mortgages that enabled people to buy bigger and more expensive homes than they could afford. When the music stopped (prices stopped rising), there were not enough chairs left for sellers, prices collapsed and bankruptcies ensued.

This time around, rising home prices were driven by pandemic-induced behavioral changes and a dearth of homes for sale. Home prices rising 20% year over year was never a sustainable pace. The current decline in housing will have the obvious knock-on effects across the economy—fewer jobs and fewer big-ticket purchases—but that doesn’t mean the housing market is crashing.

Note: Chart shows monthly change in the S&P CoreLogic Case-Shiller U.S. National Home Price Index (seasonally adjusted) from Feb. 1987 through Aug. 2022. Source: Bloomberg/S&P CoreLogic. 

Updated Tax Brackets: Lucky 7

Manager of Financial Planning Andrew Busa

The IRS released updated tax brackets, contribution limits and standard deduction numbers for tax year 2023. While these updates occur annually, this year’s adjustments pack a greater punch courtesy of higher inflation.

It’s important to keep in mind that the tax rates themselves remain unchanged; it’s the income thresholds that are rising—by about 7% for each tax filing tier. For instance, in tax year 2023 the top marginal tax rate (37%) will apply to individuals earning more than $578,125 and married couples with income above $693,750. In 2022 those hurdles were $539,900 and $647,850, respectively.

Likewise, the standard deduction is being bumped up by about 7%, to $27,700 for joint filers and $13,850 for individuals in 2023. This is up from $25,900 and $12,950. That 7% increase will also flow through to other parts of the tax code, including flexible spending account contribution limits, the earned income tax credit and capital gains tax brackets. Keep in mind that these adjustments will apply to tax returns filed in 2024.

So, what should you do differently in 2023? We believe a best practice is to review your tax withholding annually by using the IRS Tax Withholding Estimator. The IRS reported that nearly 70% of taxpayers withhold too much from their paycheck. That means less take-home pay and an interest-free loan to the government until your tax refund comes in the following year. And for clients who max out their 401(k), get ready to grow your savings—you can contribute $22,500 to this potent tax-deferred retirement savings vehicle in 2023, 10% more than in 2022.  

If you have questions about this or other tax and financial planning issues, please call us today: We’re ready to help.

Webinar: Outlasting Inflation and Bearing With the Bear Market

Yesterday, we hosted our live, interactive quarterly webinar, Outlasting Inflation and Bearing With the Bear Market. The event featured Interim Chief Investment Officer and Director of Research Jeff DeMaso, Manager of Financial Planning Andrew Busa and Vice President Liz Kesselman discussing how they’re positioning client portfolios to combat the dual challenges of a bear market and stubbornly high inflation. The trio also answered participant questions on Roth IRA conversions, the midterm election’s impact on the stock market and more.

If you missed it live or want to watch this informative webinar again, click here to watch the replay at your convenience!

Ask Us a Question!

We’re always interested in the topics or concerns you might like us to comment on. As much as we try to cover the financial planning, investment and economic fields every week, we know there’s still more that you might want to hear about. Ask us a question and one of Adviser’s wealth management or investment specialists will answer it in a future edition of The Week in Review. CLICK HERE NOW TO POSE YOUR QUERY.

Strategy Activity Update

Please see below for a summary of the trades we executed over the week through Thursday and our current tactical strategy allocations.

Dividend Income
No trades

AIQ Tactical Global Growth

Sell Cash

Buy iShares U.S. Aerospace & Defense ETF (ITA)


AIQ Tactical Defensive Growth

Sell Cash

Buy iShares Core S&P 500 ETF (IVV)


AIQ Tactical Multi-Asset Income

No trades




AIQ Tactical High Income

Sell Cash

Buy iShares iBoxx USD High Yield Corporate Bond ETF (HYG)

Buy iShares 0-5 Year High Yield Corporate Bond ETF (SHYG)

Buy Xtrackers USD High Yield Corporate Bond ETF (HYLB)

Buy VanEck Fallen Angel High Yield Bond ETF (ANGL) 

Adviser in the Media

Portfolio Manager Adam Johnson appeared on Fox Business to discuss how the midterm elections will impact the markets. And in this week’s Adviser Takeaways, Senior Research Analyst Liz Laprade looked at investing in China, while Manager of Financial Planning Andrew Busa examined the updated tax codes for 2023.

Looking Ahead

Next week’s Federal Reserve meeting will command Wall Street’s attention, but we’ll also see earnings season continue and get reads on vehicle sales, manufacturing, job openings and quits, construction spending and the unemployment rate in October.

As always, please visit www.adviserinvestments.com for our timely and ongoing investment commentary. In the meantime, all of us at Adviser wish you a safe, sound and prosperous investment future.

About Adviser

Adviser is a full-service wealth management firm, offering investment managementfinancial and tax planningmanaged individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trusts, institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 billion in assets under management. Our portfolios encompass actively managed funds, ETFs, socially responsible investments and tactical asset allocation strategies, and we’re experts on Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868.


Please note: This update was prepared on Thursday, October 27, 2022, prior to the market’s close.

This material is distributed for informational purposes only. The investment ideas and opinions contained herein—including but not limited to the Your Question Answered section—should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

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