Hamilton Capital Partners | Atlanta, GA — Hamilton Capital Partners

Markets Slump, a Brutal Q3

By Kelvin Lee, Alonso Munoz

Wow, what an eventful last week to end the quarter with. In case you were thoughtful enough to turn off the news, here were the headlines:

Hurricane Ian – Hurricane Ian hit Florida last Wednesday as a category 4. Major flooding and winds are expected to cost the state up to $80 billion in economic damage. Natural gas plants, refineries, and farms were hit in addition to houses.

Bank of England Intervention – The Bank of England (BOE), announced last week that it would temporarily be buying an unlimited amount of government bonds in order to “restore orderly market conditions”. 30-year UK government yields climbed past 5%, a negative reaction to UK PM’s Liz Truss’ budget which pledged $45B in tax cuts to be funded by more borrowing. What triggered the move? Rising yields. English pension funds were on track to be margin called to liquidate their GILT holdings for cash, which would have triggered a nationwide sell-off. PM Liz Truss has since walked back some of the tax cuts from her proposal.

Rates Rise, Equities fall – The 10-year treasury bond rose briefly past 4%, the last time this happened was during 2008. In response, the S&P500 fell to its 52-week low and broke through the 3,666-resistance level established in June. This will be the third consecutive quarter of decline in the index. Again, something not seen since 2008-2009. Another factor to watch was the volatility index, or the VIX, rising past 30 and indicating broad investor fear. Markets however are still behaving as expected and following our model of pricing in a 4.5-5% terminal fed funds rate.

Data, Data, Data –The core personal consumption expenditures price index (PCE) rose 0.6% for the month after being flat in July. Initial jobless claims, a measure we track as a precursor for the unemployment rate, fell from last month’s print to 193k. Many analysts were expecting claims to continue rising due to restrictive monetary policy. However, the strong labor market in our view is a result of declining consumer balance sheets in the lower to middle class which forces labor participation.

Overall, this week wasn’t good news for equities given the fed’s dual mandate and data reliance. With the fed’s preferred inflation metric of PCE rising and a strong jobs market, their tone is set to remain hawkish even as we sit in a technical recession.



To contact the author of this story:
Kelvin Lee at kelvin@hamiltoncapllc.com


To contact the editor responsible for this story:
Alonso Munoz at alonso@hamiltoncapllc.com


This commentary reflects the personal opinions, viewpoints and analyses of the Hamilton Capital Partners, LLC, a registered investment advisor, employees providing such comments, and should not be regarded as a description of advisory services provided by Hamilton Capital Partners, LLC or performance returns of any Hamilton Capital Partners, LLC client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Hamilton Capital Partners, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results. Hamilton Capital Partners, LLC provides links for your convenience to websites produced by other providers of industry related material. Accessing websites through links directs you away from our website. Users who gain access to third party websites may be subject to the copyright and other restrictions on use imposed by those providers and assume responsibility and risk from use of those websites