October 2022 Monthly Review

Jordi Visser

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After a brutal September for the SPX, October was a bounce-back month for stocks. The SPX closed up 7.99%, which marked the second-best monthly performance since 2020.  However, the rally did not include all risk assets. In fact, credit was mixed with IG down and high yield up.  Moreover, 2yr yields were up for the third month in a row.  During the last FOMC meeting, Fed officials kept verbal pressure on during the meeting but hinted that they would potentially tone the tightening down during the press conference after. Following the tone shift, real 2yr yields saw their largest monthly drop since 2020, coming out of the worst of the COVID fears.

Increases in risk-taking throughout the month were seen, with small caps outperforming large caps. However, hedge funds continued to show signs that they are not ready to re-lever as pure beta underperformed profitability and pure growth underperformed value.  As such, the GS VIP index underperformed the SPX. We expect to see changes in these trends when hedge funds begin to re-lever. 

As we approach the end of the year, we continue to see sporadic signs of risk-taking. However, we have not seen signs of broader re-leveraging, which historically occurs after coming out of an extended period of deleveraging. Given the large market dispersions driven by investor recession fears, we expect the re-leveraging to begin soon as we are finally seeing signs of Fed rate hike fears reduced.

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Important disclosures: Disclosures: This content (the "Insights Page") is provided by Weiss Multi-Strategy Advisers LLC ("Weiss"). The views expressed on the Insights Page are for informational purposes only and are subject to change without notice. Information on the Insights Page has been developed internally and is based on market conditions as of the date of the original post on the Insights Page from sources believed to be reliable. Nothing on the Insights Page should be construed as investment, legal, tax, or other advice and should not be viewed as a recommendation to buy or sell any security or adopt any investment strategy. Past performance is no guarantee of future results. Please consult your own advisers regarding business, legal, tax, or other matters concerning investments. Weiss has no control over information at any external site hyperlinked on the Insights Page. Weiss makes no representation concerning and is not responsible for the quality, content, nature, or reliability of any hyperlinked site and has included hyperlinks only as a convenience. The inclusion of any external hyperlink does not imply any endorsement or ongoing monitoring by Weiss of any hyperlinked site. Investing in securities is speculative and involves substantial risk of loss.