This month:

• The Fed continues to raise rates and the hawkish rhetoric is unchanged, with no indication that the Fed will pivot anytime soon. Interestingly, post the end of the quarter, the RBA only raised rates by 0.25% in October, which came as a mild surprise to the market.
• Inflation remains elevated, although we are starting to see some signs that inflation may be on the way down. Having said that, Europe, including the U.K. still seems to be struggling with inflation, in particular energy prices, so inflation remains at or near record highs. In the U.S., headline inflation came in a little lower than expected in the August print, but core inflation was higher.
• Unemployment rates remain very low across the developed world and are inconsistent with a recession scenario just at the moment. The US unemployment rate fell to 3.5% in September 2022, matching July’s 29-month low and remaining below market expectations of 3.7%. This is a clear sign that overall labour market conditions in the U.S. remain tight.
• The S&P 500 lost over 5%, while the Australian S&P 200 lost a relatively small 1.4% for the quarter. Low volatility stocks were the worst performers for the quarter, while Growth and Equal-weight were the best performing styles. This was consistent across both the Australian and global markets. From an Australian GICS sector perspective, Healthcare was the best performing sector, followed closely by Information Technology and Energy. The worst performing sectors were Utilities and Property Trusts, which was no surprise given they are some of the most interest rate sensitive sectors.
• Fixed income markets struggled during the September quarter. While Australian Fixed Interest produced positive returns for investors in July, this was more than offset by August and September’s poor performance. Bond yields continued to rise, driven by both inflation and interest rate expectations.

Read the full Monthly Economic Wrap prepared by IOOF Research here.