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Market Update - November 2022

As we look forward to celebrating Thanksgiving this week, I reflect on the words of writer William Arthur Ward: “Gratitude can transform common days into thanksgivings, turn routine jobs into joy, and change ordinary opportunities into blessings.” It is a joy to work with you to achieve your plans and goals and I am thankful for the opportunity.

And there is much to be grateful for as we look to the times ahead. As the seasons have turned, so it appears have the markets. Though economic headwinds remain, corporate earnings in general have come in better than expected and inflation has at least temporarily stabilized.

The labor market continues to be strong, though some weakness is starting to appear. The economy added 315,000 jobs in September and 261,000 in October, and the unemployment rate remains low at 3.7%. However, a lower participation rate and slowing wage growth suggest the overall labor market may be weaker than what payroll data has suggested. This divergence may indicate a coming shift in the employment picture but as we head into the busy holiday season the employment outlook remains a positive indicator.

With the Federal Reserve having raised interest rates by 0.75% in four consecutive meetings, the federal funds rate now sits in the 3.75% to 4.00% range. The latest inflation reports showed a moderate tempering of costs and should the labor market show more signs of weakness we may see the Fed slow the pace of rate increases. The market’s take is a “bad news is good news” scenario, where expectations of slower economic growth offer the Federal Reserve reason to pause their tightening stance as expectations of a soft landing in the economy grow.

In general, third quarter corporate earnings have been better than initially anticipated. According to FactSet Research, more than 70% of the S&P 500 companies have reported positive revenue growth and earnings exceeding earlier estimates. However, the earnings growth rate for those S&P 500 companies is just 2.2%, which would mark the lowest rate since the third quarter of 2020. In addition, industry leaders continue to express concern over cost pressures, supply chain issues and macro-economic challenges as obstacles for the coming year.

The resilience of domestic corporations given cost pressures, labor market challenges and supply chain issues has been remarkable. The task at hand is to reassess the value of investments given the significant change interest rates. As interest rates rise the present value of a corporation’s futures earnings falls, bringing long term value and stock price expectations down. Market volatility nonetheless has offered the opportunity to increase investments in companies showing long-term resilience and potential growth, while trimming or exiting those whose valuations seem stretched or unreasonable given the shifting economic and rate environment.

Parkview's Strategy and Positioning

While economic challenges remain with signs of slowing growth and uncertainty about the Fed’s ability to successfully fight inflation without pushing the economy into a harsh recession, the good news is that the market seems to be finding some long overdue footing.

In the short term, we anticipate that the markets will continue to gyrate as we see the counterintuitive forces of weaker economic data being a positive catalyst for financial markets and suggestions of robust economic activity met with negative sentiment and selling pressure. This selling pressure in the market may well offer further opportunities for investment at attractive prices.

At Parkview, you can continue to expect investments in companies with solid balance sheets, strong competitive advantages, effective management, and a compelling outlook for growth. As always, these investments are carefully tailored to the context of each client’s unique financial goals.

In the face of high uncertainty, Parkview will continue to seek and position investors in opportunities for capital growth and income and manage risks in an ever-evolving economic picture.

As we celebrate Thanksgiving please know how grateful I am for the trust that you place in me and Parkview. Best wishes for a happy Thanksgiving holiday.

With sincere regards,

David W. Malmgren, CFA

Founder and Principal

Parkview Capital

The information contained herein should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any securities transactions, holdings or sectors discussed were or will be profitable, or that the investment recommendations or decisions that we make in the future will be profitable. The opinions stated and strategies discussed in this commentary are subject to change at any time.

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