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Market Recap

David Darst, CFA, Senior Advisor and Investment Strategist at The Family Office shares his market recap for the month of February. Below are the highlights.

David Darst’s February 2023 Market Recap

The U.S. economy added 4.7 million jobs in 2022, including 223,000 jobs in December.

David Darst’s January 2023 Market Recap

This report sets our most probable scenario for the coming period which presents a fundamentally new investing landscape.

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After the bumpy ride in 2022, almost every asset class in public markets has ended the year worse.

Market Outlook 2023: Navigating The New Normal

Markets await how and when the ECB will sell bonds

Having already made a few rate hikes as inflation hit new records, the markets await how and when the ECB will start selling bonds. In October, ECB President Christine Lagarde indicated that bond sales will be determined by the inflation outlook, actions taken to date and transmission lag. In the December meeting, market expected the ECB to reveal how it plans to unwind €8.8 trillion ($9.22 trillion) from its balance sheet.

The ECB has been taking a meeting-by-meeting approach to interest rates, arguing that the high uncertainty prevents it from guiding markets over the medium term. Christine Lagarde said that the changes to the balance sheet will likely be applied only to the Asset Purchase Program (APP) holdings and not to the Pandemic Emergency Purchase Program (PEPP) holdings. The APP began in mid-2014 to address persistently low inflation. It was frozen between January and October 2019, and then lasted until July 2022. The PPP was a more flexible bond purchase program introduced during the pandemic.

The European Union (EU) seeks specialized court to investigate Russia war crimes

The EU has proposed a UN-backed tribunal to investigate possible war crimes by Russia in Ukraine and using frozen Russian assets to rebuild the war-torn country. Since Russian President Vladimir Putin ordered the invasion of Ukraine, his military has been accused of abuses ranging from killings in the Kyiv suburb of Bucha to deadly attacks on civilian facilities, including the March 16 bombing of a theater in Mariupol, which reportedly killed nearly 600 people. Investigations of military crimes in Ukraine are underway around Europe, and the Hague-based International Criminal Court has already launched an investigation.

U.S. unemployment was unchanged at 3.7% in November, in line with expectations. The US added 263,000 jobs in November, above the forecast 200,000 but well below the 537,000 uptick in July. Notable job gains in the leisure and hospitality sector drove the decline in unemployment among Hispanic workers. Leisure and hospitality services led payroll gains adding 88,000 positions, followed by food and drinking services adding 62,000 jobs, and healthcare with 45,000 added jobs. Average hourly earnings rose 0.6% in November, double the market forecast. U.S wages increased 5.1% YoY, also above the 4.6% forecast.

Sources: Federal Reserve Bank of St. Louis, Eurostat

*US as of November 2022; Euro Area as of October 2022

As of November, the average American household was spending $433 more monthly on the same goods and services it did a year ago. However, consumers spent $9.12 billion online shopping during Black Friday and a record $11.3 billion during Cyber Monday.

Consumer spending, which comprises around 70% of the U.S. economy, increased 0.8% after an unrevised 0.6% increase in September. Inflation-adjusted consumer spending rose 0.5%, the most since January.

Sources:, CNBC, Markit Economics, Eurostat, FRED, Reuters, 

Spending on goods increased 1.4%, driven by motor vehicles, furniture and recreational goods. Spending on services increased 0.5%, driven by restaurants and bars and housing and utilities.

U.S. retail sales increased 1.3% in October, above expectations as households increased purchases for goods, suggesting a recovery in consumer spending early in Q4 that could help support the economy.

October U.S. housing starts tumbled 4.2% to an annualized 1.425 million units while September housing starts were revised upward to 1.488 million from an earlier estimate of 1.439 million.

The US CPI annual inflation increased 0.4% in October and 7.7% YoY, below the expected 0.6% and 7.9% respectively. Core CPI, which excludes food and energy, climbed 0.3% in October and 6.3% YoY, slightly below estimates of 0.5% and 6.5%. Eurozone CPI dropped for the first time in 17 months to 10% in November from 10.7% a month earlier.

The IHS Market Manufacturing Purchasing Managers’ Index (PMI) dropped to 47.7 from 50.4 in November in the US and increased to 47.1 from 46.4 in the eurozone.

Sovereign bond yields fall as Fed suggest slower rate hikes

U.S. 10-Year Treasury yields fell to 3.61% in November from 4.05% in October as the last Fed minutes suggested slower rate hikes. Germany’s 10-year bund yields also fell in November to 1.93% from 2.14% in October and -0.18% at the beginning of the year.

Equity markets continue to rise in November

After recovering in October, US stocks continued to rise in November as the S&P 500, Dow Jones and Nasdaq increased 5.38%, 5.67% and 4.37%, respectively, driven signals of slower rate hikes and easing of Covid restrictions in China.

The STOXX Europe 600 and UK FTSE100 increased 6.75% and 6.74%, respectively, in November. The Chinese SSE Composite Index and Hong Kong Hang Seng index rose 8.91% and 26.62%, respectively, while the Japanese Nikkei 225 Index increased 1.38%.

Investment grade spreads tightened to 1.42% at the end of November from 1.66% at the end of October, while high-yield spreads also tightened to 4.55% from 4.63%.

Oil prices fall amid worsening conditions

Spot WTI and Brent crude oil prices fell from $86.53 and $92.81 per barrel, respectively, on October 31 to $80.55 and $86.97 on November 30 amid worsening conditions in the U.S. and persisting battle in China to combat coronavirus

Sources: Bloomberg, FRED, Reuters, Coinbase

OPEC oil production fell in November, led by top exporter Saudi Arabia and other Gulf countries, after the OPEC+ alliance committed to deep production cuts to support the market amid a worsening economic outlook.

In Europe, gas prices climbed at month end after Russia warned it could restrict supplies to western Europe starting December, unsettling energy markets ahead of the winter. The European gas benchmark, TTF, rose 18% to €146 at the end of November. However, wholesale gas prices in Europe fell sharply from the August record high of around €340 per megawatt hour, mainly due to limited industrial demand, higher-than-expected-supply and lower domestic consumption. Russia’s decision will still reinforce concerns about Europe's energy supply in the colder months.  Energy inflation in the euro area fell from 41.90% in October to 34.90% in November, easing headline inflation in the region.

Both the US dollar, gold, and Bitcoin fall

The US dollar started to decrease in November but stayed above 100, closing the month at  $105.95 from $111.53 on October 31. Meanwhile, gold prices rose 8.26% in November to $1,769 from $1,634 at the end of October. Bitcoin dropped 16% to $17,173 at the end of the month, over 75% below its all-time high of $68,789.6 on November 10, 2021.

The Consumer Sentiment Index of the University of Michigan declined 5.2% to 56.8 in November from 59.9 in October and 15.7% YoY.

The VIX index decreased to 20.58 at month end from 25.88 in October.

The month-end Fear and Greed Index (which uses seven factors including market momentum, safe-haven demand, and junk bond demand) showed “Greed” at 70 at the end of November, above the 58 “Greed” at the end of October.

The number of COVID-19 cases and deaths is rising as many countries drop restrictions during the summer.

With easing US restrictions during the summer, cases are rising again, with a seven-day average of 124,312 cases in July compared to 112,693 in June. The Centers for Disease Control and Prevention (CDC) believe infections are likely to be much higher as many at-home Covid tests elude the official data. The Omicron variant dominates new infections, causing around 95% of new cases. Public officials expect a larger wave of infection in the fall as immunity from vaccines fades. The U.S. has agreed a $1.74 billion deal to purchase 66 million doses of the new Moderna vaccine that targets Omicron, and a $3.2 billion deal for 105 million doses of updated Pfizer shots to battle the expected infection wave during fall.

Omicron cases have also surged in Europe through the summer as travel restrictions and mandatory testing requirements eased. Despite an explosion of Omicron cases throughout the continent, governments are not concerned as severe cases that crowd intensive care units have not increased.

China implemented a “zero-covid” policy in May to suppress the virus, using mass testing and lockdowns. The highly transmissible Omicron variant has strained that strategy, especially with the more infectious subvariants, as the seven-day average increased to 686 cases ending July, from 116 at the end of June.

Fed Economic Projections on December 14-15

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All information, figures, calculations, graphs and other numerical representations appearing in this presentation have not been audited and may be subject to change over time.  Furthermore, certain valuations (including valuations of investments) appearing in this presentation are subject to change as they may be based on either estimates or historical figures that do not reflect the latest valuation.  Although all information and opinions expressed in this presentation were obtained from sources believed to be reliable and in good faith, no representation or warranty, express or implied, is made as to their accuracy or completeness.  The information contained herein is not a substitute for a thorough due diligence investigation.  Past performance is not indicative of and does not guarantee future performance.  Exit timelines, prices and related projections are estimates only, and exits could happen sooner or later than expected, or at a higher or lower valuation than expected, and are conditional, among other things, on certain assumptions and future performance relating to the financial and operational health of each business and macroeconomic conditions.

The Family Office makes no representation or warranty, express or implied, with respect to any statistics or historical or current financial data, whether created by The Family Office through its own research or quoted from other sources.  With respect to any such statistics or data delivered or made available by or on behalf of The Family Office, it is acknowledged that (a) the investor takes full responsibility for making its own evaluation of the materiality of the information and the integrity of the quoted source and (b) the investor has no claim against The Family Office.

Amounts in currencies other than the US Dollar are translated using prevailing market rates as calculated by The Family Office or its service providers and may differ from the rates used by banks.  The rates are indicative only and do not reflect the rates at which The Family Office would be prepared to enter into any transactions with other parties.

 Certain information contained in this presentation constitutes “forward-looking statements,” which can be identified by the use of words such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “plans,” “estimates,” “intend,” “continue,” or “believe” or the negatives thereof or other variations thereon or comparable terminology.  To the extent this presentation contains any forecasts, projections, goals, plans and other forward-looking statements, such forward-looking statements are inherently subject to, known and unknown, significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond The Family Office’s control and may cause actual performance, financial results and other projections in the future to differ materially from any projections of future performance, results or achievements expressed or implied by such forward-looking statements.   Investors should not place undue reliance on these forward-looking statements.  The Family Office undertakes no obligation to update any forward-looking statements to conform to actual results or changes in The Family Office’s expectations, unless required by applicable law.

 The Family Office makes no representation or warranty, express or implied, with respect to any financial projection or forecast.  With respect to any such projection or forecast delivered or made available by or on behalf of The Family office, it is acknowledged that (a) there are uncertainties inherent in attempting to make such projections and forecasts, (b) the investor is familiar with such uncertainties, (c) the investor takes full responsibility for making its own evaluation of the adequacy and accuracy of all such projections and forecasts so furnished to it and (d) the investor has no claim against The Family Office.

 This presentation represents a summary of certain information, the full terms of which are contained in a Private Placement Memorandum that should be reviewed for a more complete understanding of the investments and their risks.  In addition, this presentation does not constitute an offer to sell, or a solicitation to buy, any instrument or other financial product, nor does it amount to a commitment by The Family Office to make such an offer at present or an indication of The Family Office’s willingness to make such an offer in the future.

The Family Office is a Category 1 Investment Firm regulated by the Central Bank of Bahrain 

.53871 dated 21/6/2004. Paid Up Capital: US$10,000,000. The Family Office only offers products and services to ‘accredited investors’ as defined by the Central Bank of Bahrain.

The Fed raised rates by 0.75% at its November meeting. While Fed Chair Jerome Powell confirmed his commitment to reduce inflation to the 2% target, he also indicated that the Fed is prepared to raise rates in smaller increments as they assess the economic effect of the most aggressive tightening campaign in decades.

David Darst’s November 2022 Market Recap

The Fed continues its aggressive rate hike cycle

With inflation near its highest since the early 1980s, the Fed raised its federal funds rates by 0.75% on September 21 for a third consecutive time to a range of 3% to 3.25%, its highest level since early 2008. In its November 2022 meeting, the Fed implemented a fourth consecutive 0.75% interest rate hike this year. The market rally at the beginning of the meeting reversed when Fed Chair Jerome Powell stated that the terminal rate fed funds may be higher than expected as policy must be more restrictive.

U.S. Consumer Price Index (CPI) increased 8.2% year-on-year (YoY) in September from a peak of 9.1% in June, but still near its highest since the early 1980s. Excluding the volatile food and energy prices, core CPI rose 6.6% YoY, its biggest increase since 1982.

The reduction in the $8.9 trillion balance sheet of the Fed may slow or even stop completely by June 2023, more than a year ahead of market expectations, if the plans to unwind the balance sheet face complications through 2023.

Geopolitical tensions persist between Russia and the West over Ukraine

As the conflict in Ukraine escalates, the European Union (EU) is planning new sanctions against Russia after some European countries were banned from importing Russian oil.

Gazprom, the Russian energy giant, has suspended supplies to Poland and Bulgaria, for failing to pay for their energy in rubles. Fears that other countries could be similarly suspended have caused gas prices to soar. European Commission President Ursula von der Leyen stated that the EU was ready for this situation and had been working to ensure alternative deliveries and gas storage.

The EU is undergoing difficult discussions on whether to ban imports of Russian crude within six months and refined products by year end, but needs the unanimous approval of all 27 EU states, which is challenging given the rift between members.

The ECB raised rates by 0.75% for the second consecutive time

The ECB raised interest rates by 0.75% to 1.5%, their highest level since 2009, further increasing borrowing costs to cope with record inflation in the Eurozone despite the threat of recession. The aggressive hike was in line with expectations as rate setters focus on controlling inflation through monetary tightening despite growing criticism.

The ECB anticipates raising rates as long as inflation remains elevated. The deposit rate is expected to reach 2% in December and peak to around 3% in 2023.

The ECB has also taken a first step towards reducing its €8.8 trillion balance sheet, which is likely to further increase borrowing costs and act as a hidden rate hike. The ECB has also reduced its subsidy to commercial banks through €2.1 trillion worth of ultra-cheap three-year loans called Targeted Longer-Term Refinancing Operations (TLTRO).

Heavy explosions triggered a major gas leak on Russian pipelines.

On September 26, a series of explosions on the Nord Stream 1 and 2 pipelines caused a relese of gas on the surface of the Baltic Sea. The explosions triggered gas leaks at four locations (two in the Denmark economic zone and two in the Sweden economic zone).

Many suspect an attack, especially that the explosions occurred amid a hostile energy dispute between the European Union (EU) and Russia. The Kremlin has repeatedly denied claims that it damaged the pipelines, stating that the U.S. has the most to gain from gas leaks.

After falling to 3.5% in September, U.S. unemployment rose to 3.7% in October. The 261,000 jobs added in October exceeded the expected 190,000 as hiring remained strong. Health care led job gains, adding 53,000 jobs, while professional and technical services and manufacturing added 43,000, and 32,000, respectively. Labor force participation eased to 62.2%, down 0.1% since September. Average hourly earnings increased 4.7% YoY and 0.4% for the month.

In September 2022, unemployment in the Euro Area dropped to 6.6% from 6.7% in August 2022 and 7.3% a year ago.

US GDP increase for the first time of the year

The 2.6% increase in U.S. GDP in Q3 2022, following a -0.6% fall in Q2 and a -1.6% drop in Q1, was above the Dow Jones forecast of 2.3%, driven by higher exports and consumer spending partly offset by lower housing investment. Spending increased 2.8% for services but fell 1.2% for goods. Consumer spending, which comprises around 70% of the U.S. economy, increased 0.6% in September, above the expected 0.4%, causing the August data to be revised upward.

September U.S. retail sales rose 8.2% YoY but were unchanged quarter-on-quarter after the August figures were revised to a 0.4% increase instead of 0.3%.

U.S. housing starts fell 8.1% in September to an annualized rate of 1.439 million, well below market expectations of 1.475. August figures were also revised downward to 1.566 million units from 1.575 million units.

Q3 2022 GDP in the Euro area and the EU increased 0.2%, slightly below the 0.8% and 0.7% rise in Q2 in the Euro area and the EU, respectively.

US CPI fell to 8.2% in September from a peak of 9.1% in June but remained near its highest since the early 1980s and above the 8.1% market forecast. Core CPI, which excludes food and energy, rose 6.6% YoY in September, the highest since 1982. In September, CPI and Core CPI were above estimates, rising by 0.4% and 0.6%, respectively, suggesting that inflation might remain elevated. Eurozone CPI reached a YoY high of 10.7% in October, above the 10.2% predictions.

The IHS Market Manufacturing Purchasing Managers’ Index (PMI) fell to 50.4 in October from 52.0 in September in the US and dropped to 46.4 from 48.4 in the Euro area.

Sovereign bond yields rise amid Fed tightening

U.S. 10-Year Treasury yields closed October at 4.05% from 3.83% in September as the Fed remained hawkish. Germany’s 10-year bund yields also increased, closing October at 2.14% from 2.11% in September.

The S&P 500, Dow Jones and Nasdaq rose 7.99%, 13.95% and 3.90%% in October, respectively. The market rallied in October driven by a strong labor market and expectations that the Fed might slow their tightening policy.

The STOXX Europe 600 and UK FTSE100 rose 6.28% and 2.91% respectively, in October. The Chinese SSE Composite Index and Hong Kong Hang Seng index fell 4.33% and 14.72%, respectively, while the Japanese Nikkei 225 Index rose 6.36%.

Investment grade spreads narrowed slightly to 1.66% at the end of October from 1.67% in September, while high-yield spreads dropped to 4.63% from 5.43%.

Spot WTI and Brent crude oil prices rose from $79.49 and $85.14 per barrel, respectively, on 30 September to $86.53 and $92.81 at the end of October. WTI and Brent peaked on October 7 to $92.64 to $95.89, respectively. Oil prices increased throughout October as OPEC+ agreed the largest production cuts since 2020. Goldman Sachs raised its 2022 Brent forecast to $104 per barrel from $99, and its 2023 forecast to $110 from $108.

Opec+ will cut production by 2 million barrels per day starting November to reverse the declining trend, despite pressure from U.S. President Joe Biden to increase production and lower fuel prices ahead of the midterm elections next month.

After rising to historic highs last August to almost €340 per megawatt hour following Russia's invasion of Ukraine, EU natural gas prices have fallen considerably to €123 at the end of October. The latest report from industry group Gas Infrastructure Europe shows that overall EU gas storage is nearly 94% full, well above the 80% target set for the beginning of November. The conflict still impacts the region as the EU obtained about 40% of its natural gas from Moscow, which has since been dropped below 10%.

The US dollar stayed above 100, reaching 111.53 on October 30. Meanwhile, gold prices fell 1.6% in October to $1633.56 with the stronger dollar, while Bitcoin increased 4.18% for the month to $20,412.72 but remains more than 70% below its all-time high of $68,789.6 on November 10, 2021.

Apple beat earning per share (EPS) and revenue estimates although their flagship iPhone disappointed. Fiscal Q4 revenue of $90.15 billion was above the estimated $88.90 billion while EPS of $1.29 exceeded the expected $1.27. iPhone revenue rose 9.67% YoY to $42.63 billion but was below the estimated $43.21 billion. Gross profits margin of 42.3% was above the expected 42.1%.

Amazon shares dropped over 10% after below-estimate Q3 earnings and a weak Q4 guidance. Revenue of $127.10 billion was below the estimated $127.46 billion while EPS of $0.28 was below the estimated $0.22. Amazon Web Services revenue of $20.50 billion was also below the estimated $21.10 billion.

Meta shares fell almost 20% in after-hours trading after another quarter of declining revenues. Revenue dropped 4% YoY to $27.71 billion but exceeded estimates of $27.38 billion while EPS of $1.64 was below the expected $1.89. Daily active users were in line with expectation at 1.98 billion, but average revenue per user of $9.41 was below the expected $9.83 amid increased competition from TikTok, the privacy policy change by Apple and a slowdown in online advertising spending.

Alphabet growth slowed to 6% from 41% a year earlier amid a continued slowdown in online ad spending. Revenues of $69.09 billion were below the expected $70.58 billion while EPS of $1.06 was below the expected $1.25. YouTube and Google advertising revenue of $7.07 billion and $54.48 billion, respectively, were below the expected $7.42 billion and $56.89 billion. But Google Cloud revenue of $6.87 billion was above the $6.69 billion expected.

Microsoft beat estimates despite softer cloud revenue. Revenue and EPS of $50.12 billion and $2.35, respectively, were above the expected $49.61 billion and $2.30. Revenue from the Intelligent Cloud segment of $20.33 billion was slightly below the expected $20.36 billion.

Tesla revenues of $21.45 billion were below the $21.96 billion expected, but EPS of $1.05 was above the expected $0.99. Automotive revenue increased 55% YoY to $18.69 billion.

Amazon Q1 2022 revenues grew 7.3% YoY to $116.4 billion, just above the estimate of $116.3 billion, while the EPS of $7.38 missed estimates of $8.36. Amazon could not beat consensus revenue estimates over the last four quarters.

Meta Q1 2022 revenues grew 7% YoY, its slowest since its 2012 IPO after consistent double-digit growth, to $27.9 billion, under analyst estimates of $28.2 billion. EPS of $2.72 was above expectations of $2.56. Facebook daily active users increased 4% YoY to 1.9 billion in March 2022.

Alphabet Q1 2022 revenues grew 23% YoY to $68.0 billion, in line with the expected $68.1 billion, while EPS dropped YoY to $24.62, below the estimates of $25.91. Meanwhile, Q1 EBITDA grew 24.4% YoY to $23.9 billion.

Microsoft Q1 2022 revenues grew 18% YoY to $49.4 billion compared to estimates of $49.1 billion, while EPS increased 9.4% to $2.22 against $2.19 expected. Office business offerings and Office consumer products and cloud services increased 12%  and 11%, respectively. Total subscribers to Microsoft 365 consumer offerings were 58.4 million.

Tesla Q1 2022 revenues increased 87% YoY to $18.8 billion, beating estimates of $17.8 billion while the EPS of $3.22 EPS also beat expectations of $2.26. Gross profit margins rose to a record 32.9% with a gross profit of $5.5 billion in its main segment.

Financials deliver strong earnings amid rising interest financial rates

JP Morgan Chase revenues and EPS of $33.49 billion and $3.12. respectively, were above the estimated $32.10 billion and $2.88. Profit dropped 17% YoY as $808 million were added to net reserves for bad loans.

Citigroup revenue rose 6% YoY to $18.51 billion, above the expected $18.25 billion with EPS of $1.63. Q3 2022 net income fell 25% YoY to $3.48 billion.

Morgan Stanley revenue and of $12.99 billion $1.47, respectively, were below the expected $13.30 billion and $1.49. Profit fell 19% to $2.63 billion while revenue decreased 12% driven by the fall-off in investment banking and declines in investment management revenue.

Goldman Sachs revenue and EPS of $11.98 billion and $8.25 were above the expected $11.41 billion and $7.69 forecast with approximately $3.53 billion in revenue from fixed income traders. Profit fell 43% to $3.07 billion.

Visa, Mastercard and American Express performed well in Q3 2022. Visa net revenues increased 19% YoY to $7.80 billion while EPS grew 13% to $1.86. Mastercard revenues grew 15% YoY to $5.80 billion, while EPS of $2.68 beat the estimated $2.56. American Express revenue increased 24% YoY to $13.60 billion while EPS grew 9% to $2.47.

Strong earnings for Energy and Industrials

Exxon Mobil earnings grew to $19.70 billion (EPS of $4.68) amid resilient volume performance.

Q3 2022 profits were the second-highest ever with booming global demand for oil and gas and increased production from U.S. oil fields. Net income was $11.20 billion (EPS of $5.78 vs estimate of $4.86).

The revenues of Caterpillar, often considered a barometer for the economic cycle, grew 21% YoY to $15.0 billion ($12.4 billion in Q3 2021) due to favorable price realization and higher sales volume. EPS grew to $3.87 from $2.60 a year earlier.

Improved consumer sentiment despite slower expected growth

The Consumer Sentiment Index of the University of Michigan increased 2.22% to 59.9 in October from 58.6 in September, despite dropping 16.5 % YoY.

The VIX index dropped to 25.88 in October from 31.62 in September, as equity markets recovered swiftly.

The month-end Fear and Greed Index (which uses seven factors including market momentum, safe-haven demand, and junk bond demand) showed “Greed” at 58 at the end of October as market expected that the Fed could slow their tightening policy.

The number of COVID-19 cases and deaths fell significantly since their January highs.

US daily cases in April were substantially below the January peak of 800,000, with a seven-day average of 57,654 cases compared to 500,000 at the end of January. As hospitalization cases dropped throughout the country, many state leaders opted to ease their mask and proof-of-vaccination requirements.

Daily Cases in Europe have more than halved last month, from just below 790,000 in late March to 374,000 at the end of April. Most countries in Europe are dropping travel restrictions and mandatory testing requirements due to the mildness of Omicron infections.

April was a very important month for Southeast Asia as Covid cases declined and travel resumed. Airline bookings are rising to destinations like Malaysia, Thailand and Indonesia as those countries allowed quarantine-free entry for vaccinated travelers.

China remains affected by Covid-19 with 282% in cases to 26,935 at the end of April. China adopted a zero-Covid policy, implementing lockdowns in cities such as Shanghai.

Fed  Last Meeting of 2022 on December 14

All information, figures, calculations, graphs and other numerical representations appearing in this presentation have not been audited and may be subject to change over time. Furthermore, certain valuations (including valuations of investments) appearing in this presentation are subject to change as they may be based on either estimates or historical figures that do not reflect the latest valuation. Although all information and opinions expressed in this presentation were obtained from sources believed to be reliable and in good faith, no representation or warranty, express or implied, is made as to their accuracy or completeness. The information contained herein is not a substitute for a thorough due diligence investigation. Past performance is not indicative of and does not guarantee future performance. Exit timelines, prices and related projections are estimates only, and exits could happen sooner or later than expected, or at a higher or lower valuation than expected, and are conditional, among other things, on certain assumptions and future performance relating to the financial and operational health of each business and macroeconomic conditions.

The Family Office makes no representation or warranty, express or implied, with respect to any statistics or historical or current financial data, whether created by The Family Office through its own research or quoted from other sources. With respect to any such statistics or data delivered or made available by or on behalf of The Family Office, it is acknowledged that (a) the investor takes full responsibility for making its own evaluation of the materiality of the information and the integrity of the quoted source and (b) the investor has no claim against The Family Office.

Amounts in currencies other than the US Dollar are translated using prevailing market rates as calculated by The Family Office or its service providers and may differ from the rates used by banks. The rates are indicative only and do not reflect the rates at which The Family Office would be prepared to enter into any transactions with other parties.

Certain information contained in this presentation constitutes “forward-looking statements,” which can be identified by the use of words such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “plans,” “estimates,” “intend,” “continue,” or “believe” or the negatives thereof or other variations thereon or comparable terminology. To the extent this presentation contains any forecasts, projections, goals, plans and other forward-looking statements, such forward-looking statements are inherently subject to, known and unknown, significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond The Family Office’s control and may cause actual performance, financial results and other projections in the future to differ materially from any projections of future performance, results or achievements expressed or implied by such forward-looking statements. Investors should not place undue reliance on these forward-looking statements. The Family Office undertakes no obligation to update any forward-looking statements to conform to actual results or changes in The Family Office’s expectations, unless required by applicable law.

The Family Office makes no representation or warranty, express or implied, with respect to any financial projection or forecast. With respect to any such projection or forecast delivered or made available by or on behalf of The Family office, it is acknowledged that (a) there are uncertainties inherent in attempting to make such projections and forecasts, (b) the investor is familiar with such uncertainties, (c) the investor takes full responsibility for making its own evaluation of the adequacy and accuracy of all such projections and forecasts so furnished to it and (d) the investor has no claim against The Family Office.

This presentation represents a summary of certain information, the full terms of which are contained in a Private Placement Memorandum that should be reviewed for a more complete understanding of the investments and their risks. In addition, this presentation does not constitute an offer to sell, or a solicitation to buy, any instrument or other financial product, nor does it amount to a commitment by The Family Office to make such an offer at present or an indication of The Family Office’s willingness to make such an offer in the future.

.53871 dated 21/6/2004. Paid Up Capital: US$ 10,000,000. The Family Office only offers products and services to ‘accredited investors’ as defined by the Central Bank of Bahrain.

With inflation near its highest since the early 1980s, the Fed raised its federal funds rates by 0.75% on September 21 for a third consecutive time to a range of 3% to 3.25%, its highest level since early 2008. 

Monthly Market Update | October 2022

Main indices year-to-September 30, 2022 performance

(*)Basket of 59 non profitable tech companies

Equity markets suffered a 10% correction in Q1, but rallied strongly in the last two weeks of March, despite Russia's invasion of Ukraine and the first rate hike by the Fed in March. But the relief was short-lived as both equity and fixed income markets trending lower in Q2 and stocks falling into a bear market (correction of 20% or more). Bonds and equities recovered slightly in Q3 but are returning to bear market territory.

(*) Dow Jones Industrial Average Return from December 31, 2021, to September 30, 2022 (-19.72% loss, 194 days)

US Bear markets & recoveries since the 1800s

Bear markets are divided into three categories: structural, cyclical and event-driven. Structural bear markets are initiated by structural imbalances and financial bubbles (e.g., the Dotcom bubble, GFC). Cyclical bear markets are typically prompted by rising interest rates, an impending recession and falling earnings (e.g., 2022 bear market). Event-driven bear markets are triggered by a one-time shock (e.g., the 1990 oil price shock, Covid-19). We are in a cyclical bear market correction.

Source: Goldman Sachs Research, data from 1835 to 2022

Global financial conditions have tightened sharply as central banks moved to tame inflation and the US composite Purchasing Managers’ Index (PMI) fell below 45, increasing fears of a potential recession.

Despite the 5% drop in energy prices and 10.6% drop in gasoline prices in August, YoY inflation was higher than expected at 8.3%. Shelter and healthcare costs rose 0.7%, while prices of durable and non-durable goods increased 0.5% and 1.4%, respectively, in August.

Pushing Fed rates to 4.25%-4.50% by year end 

The Fed hiked rate by 0.75% for the third consecutive time in September. The Fed is expected to raise its policy rate by 0.75% in November and 0.50% in December, followed by two 0.25% rate hikes in February and March 2023. This would bring the fed funds rate to 4.25-4.5% by year end and 4.75-5.0% by Q1 2023.

Source: Federal Reserve, BofA Global Research

A tightening policy is matched by rising yields

Rising yields reduce the valuations of risk assets as investors demand higher returns. Assets with longer duration (i.e. high sensitivity to interest rates) are the most affected.

The six-month US Treasury yield is getting closer to the average US capitalization rate (net operating income to value) which provides little incentive to invest in real estate. The spread of 2.7% is below the 20-year average of 5.9%.

Mortgage rates put additional weight on household

U.S. 30-year mortgage rates reached 6.7% in September, the highest level since 2008 and more than double the level a year ago. US real estate affordability dropped significantly to levels not seen since the 1980s.

In August, housing starts dropped -2.5% YoY for a fourth consecutive month, while building permits declined to the slowest pace since mid-2020. After falling for six consecutive weeks, US mortgage applications rose 3.8% in the week ending September 16th, the biggest increase in three months.

The correction has not yet factored lower anticipated earnings

Lower earnings are expected due to higher labor and raw material cost amidst supply chain bottlenecks.

S&P 500 earnings growth led by energy sector

Of the 498 companies in the S&P 500 that have reported earnings as of September 23, 2022, 78% reported better-than-expected earnings in Q2 2022 (vs. a long-term average of 66%). 

of S&P 500 earnings and have increased 295.5% YoY, boosting the index earnings growth. 

, earnings growth for the S&P 500 would be significantly 

. Also, energy sector YoY earnings growth is expected to slow to 118% in Q3 2022 (1,798% in Q3 2021) and 64.4% in Q4 2022 (12,611% in Q4 2021). The expected S&P 500 earnings 

Source: I/B/E/S data by Refinitiv as of September 23, 2022

(*) Blend of Reported & Estimated Earnings

While stocks are still trading above historical averages of high interest rate environment

Public market valuations, notably the S&P 500, may drop further with earnings revisions. In previous inflationary environments when the consumer price index (CPI) exceeded 3%, the median and average correction in price to earnings (P/E) were 20% and 30%, respectively. The S&P P/E was around 22.0x when the Fed started hiking rates in March 2022, indicating further downside as earnings are revised.

Source: Bloomberg, data Between January  2007 and September 2022

The CEO confidence level dropped to 34 from 42 at the end of Q2 2022. The measure has fallen to levels not seen since the start of the COVID-19 pandemic in 2020. The Consumer Sentiment Index has declined significantly since the beginning of the year as fears of a recession mount. JPMorgan Chase & Co. trading model shows a 92% probability of a US recession, compared to 51% in August.

Source: Yield Curve: 10 2Yr differential: US Personal Consumer Expenditure YoY . Labor: U.S. Unemployment %. Credit Performance: U.S. High yield spreads. ISM MFG: U.S. PMI. Earnings: S&P YoY Earnings growth. Housing: U.S. House Price Index.

Business activity is slowing amid persistently high inflation, which drives high market volatility. Moreover, as central banks around the world hike rates to tame inflation, growth could reduce further. As a result, credit is favored over equities.

After a partial recovery at the end of Q2 2022, markets fell as risky assets remain heavily impacted by persistent inflation and rising interest rates.

Q3 2022 Market Recap And Economic Review

Faced with the fastest inflation since the euro was introduced, the ECB raised borrowing costs for the first time in more than a decade last month, lifting its deposit rate by 0.5% to 0%. Cuts to Russian natural gas supplies and the resulting surges in energy costs are likely to drive inflation higher than previously expected and the resulting squeeze on household incomes may make a recession unavoidable. The market expects the ECB to raise rates by 0.5% in September (a higher 0.75% hike is possible). ECB board member Fabio Panetta warned that the ECB must exercise caution with further rate hikes as a looming recession may ease inflationary pressures, lessening the need for central bank action. HSBC expect the ECB to stop hiking interest rates after the end of 2022, when a recession in the region and easing price pressures restrain monetary-policy tightening. The ECB is expected to raise rates by 0.25% in October and December.

U.S. imposes more sanctions on Russia while Gazprom cuts European gas supplies

As the Russia-Ukraine conflict continues, Russia's state-owned energy firm Gazprom said that due to maintenance on the Nord Stream 1 pipeline there would be no gas flow to Germany for three days starting on August 31. Germany has accused Moscow of using energy as a weapon. Gazprom also said it would suspend gas supplies to France's main provider, Engie, as the French company  had failed to pay for all deliveries made in July. Russia has also cut supply to Bulgaria, Denmark, Finland, the Netherlands and Poland completely, and reduced flows via other pipelines in response to sanctions on Moscow following the invasion of Ukraine. This disruption comes at a time when the energy market is already strained and wholesale gas prices are soaring over 400% since last August.

U.S. unemployment rose to 3.7% in August, largely due to the labor force participation rising to 62.4%, its highest level since March 2020. US added 315,000 jobs for the month, just below the Dow estimate of 318,000 and well below the 526,000 uptick of July. Professional and business services led payroll gains with 68,000, followed by health care with 48,000 and retail with 44,000.

US wages continued to rise, but slightly below expectations. Average hourly earnings increased 0.3% for the month and 5.2% YoY, both 0.1% below estimates.

*US as of August 2022; Euro Area as of July 2022

The U.S. economy contracted at a more moderate pace than initially expected in Q2 as consumer spending mitigated the effect of a sharp slowdown in inventory accumulation. US GDP shrank at an annualized 0.6% last quarter, the government said in its second estimate of GDP. That was above the previously estimated 0.9% decline. The economy contracted 1.6% rate in Q1.

Consumer spending, which comprises around 70% of the U.S. economy, increased 0.1% in July, marking a slowdown from June when spending increased 1.1%. US consumers spent less on gasoline last month, reflecting lower prices at the petrol station.

Sources:, CNBC, Markit Economics, Eurostat, FRED, Reuters

Consumers also slowed spending on services and continued to spend on durable goods. Consumers have become more cautious as they faced economic disturbances, including supply-chain disruptions and rising interest rates which make borrowing more expensive. Personal income increased 0.2% in July, primarily reflecting higher compensation.

U.S. retail sales were unchanged in July, below the 0.1% estimate and below the 1% increase in June.

U.S. housing starts tumbled 9.6% to an annualized rate of 1.45 million units in July, the lowest since February 2021 and well below market expectations of 1.54 million.

The US CPI annual inflation increased 8.5% in July, below expectations and the 9.1% YoY increase in June. Core CPI, which excludes food and energy, climbed 5.9% YoY in July from a peak of 6.5% in March. Monthly US CPI was flat while core CPI increased 0.3%. Eurozone CPI reached a new YoY high at 9.1% in August, marking the ninth straight month of record consumer price increases.

The IHS Market Manufacturing Purchasing Managers’ Index (PMI) remained at 52.8 in August in the US and dropped to 49.6 from 49.8 in the euro area.

Sovereign bond yields rise amid investor concerns

U.S. 10-Year Treasury yields rose to 3.19% in August from 2.65% in July as investors weighed the prospects of a U.S. recession. Germany’s 10-year bund yields rose to 1.54% in August from 0.81% in July and -0.18% at the beginning of the year.

After partially recovering in July, US stocks fell in August. The S&P 500, Dow Jones and Nasdaq declined 4.24%, 4.06% and 4.64% in August, respectively. The threats of a looming recession and the strong message on interest rates from the Fed impacted risky assets.

The STOXX Europe 600 and UK FTSE100 fell       -5.29% and -1.88% respectively, in August. The Chinese SSE Composite Index and Hong Kong Hang Seng index fell -1.57% and 1.00%, respectively, while the Japanese Nikkei 225 Index rose 1.04%.

Investment grade spreads tightened to 1.48% at the end of August from 1.53% at the end of July, while high-yield spreads widened to 5.03% from 4.83%.

Spot WTI and Brent crude oil prices fell from $98.62 and $103.97 per barrel, respectively, on July 29 to $89.55 and $95.64 on August 31 amid rising recession fears and  worries of demand destruction across the West as interest rates rise.

OPEC+ agreed to increase output by 648,000 barrel per day (bpd) in July and August and decided earlier this month to raise production quotas by another 100,000 bpd in September as it faced pressure from major consumers including the US. But Saudi Arabia, the top producer in the Organization of the Petroleum Exporting Countries (OPEC) has raised the possibility of a production cut, which could coincide with an increase in supply from Iran if it reaches a nuclear deal with the West.

Governments across Europe are grappling with a cost-of-living crisis driven by Russia’s invasion of Ukraine and its subsequent cuts to gas supplies. Record gas prices threaten to send the region’s economy into a deep recession. Europe’s benchmark gas price has soared by almost a third in the last week of the month and European gas prices hit a record high above €343 per megawatt hour on August 26, showing the serious threat to energy-intensive industries.

The US dollar kept increasing and stayed well above 100, reaching $108.70 on August 31 from $105.90 on July 29. Meanwhile, gold prices fell -3.11% in August to $1711.04 as the Fed stays hawkish, while Bitcoin dropped 16% to $19,813.97 at the end of the month, more than 70% below its all-time high of $68,789.6 on November 10, 2021.

The Consumer Sentiment Index of the University of Michigan increased 13% to 58.2 in August from 51.5 in July after a record low of 50 in June.

The VIX index increased to 25.87 at the end of the month from 21.33 in July.

The month-end Fear and Greed Index (which uses seven factors including market momentum, safe-haven demand, and junk bond demand) showed “Neutral” at 48 at the end of August, after showing “Greed” from August 1 to August 29.

Watch David Darst, CFA - Senior Advisor, share his recap of the major events in August 2022.

David Darst’s August 2022 Market Recap

Job growth accelerates despite record inflation

U.S. unemployment remained at 3.6% in June, adding 372,000 jobs compared to 384,000 in May. The education and health services sector had the largest monthly increase in employment adding 96,000 jobs, followed by professional and business services adding 74,000 jobs. Labor force participation declined 1.2% to 62.2%, 1.2% below its pre-pandemic level.

US wages climbed 5.1% YoY in June. Unemployment in the Euro Area was 6.6% in June 2022, the same as in May 2022 compared to 7.9% in June 2021.

U.S. GDP contracted 0.9% in Q2 2022, following a 1.6% fall in Q1 while the Dow Jones estimated a 0.3% gain, amid lower inventories, residential and nonresidential investment, and government spending. Although recession has been traditionally defined as a reduction in GDP for two consecutive quarters, the National Bureau of Economic Research, who declare recessions and expansions, are not expected to make a judgement until months to come.

Our team of experts shares their Monthly Market Update for July 2022. Click to learn more about market trends and updates!

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