U.S. stock indexes have taken a step higher since our Market Update two weeks ago. During the prior two weeks through Friday, the S&P 500 index gained 5.1%. The Dow Jones Industrial Average gained 4.1% and the Nasdaq Composite 6.4%.
The S&P 500 is down -15.6% year-to-date. Although ugly, it stands nearly 11% higher than the index’s YTD daily low close on October 12. Contributing to the recent uptick were inflation reports that the market perceived as positive. Investors have bid-up stocks, believing inflation to be cooling and assuming the Federal Reserve will slow its pace of interest rate hikes.
Many investors have been “buying the dip” this year. The Wall Street Journal today reports, “Investors have poured more than $86 billion into U.S. equity mutual and exchange-traded funds in 2022, according to Morningstar Direct data through the end of October. That is on track to mark the second-highest sum since 2013, following last year’s inflows of $156 billion.”
Stocks being bought during a weak year illustrates the forward-looking nature of markets and, in our view, long-term investing discipline. A robust labor market and resilient consumer spending are helping to boost confidence.
Foreign capital moving into the U.S. is also a tailwind to our American markets. As Europe contends with an energy crisis and China with stringent Covid lockdowns, overseas investors have been heading towards American assets and currency for stability.
Although the U.S. seems to be positioned the best presently, we generally favor owning a portion of a stock portfolio in international equities. This is for diversification reasons. The U.S. only accounts for 62% of the global stock market capitalization, based on weightings in the MSCI All Country World index.