Having fallen sharply over the prior four-week period the FT Wilshire 5000 started to inflect sharply higher from mid-October closing out the month with a +8.2% return. There were two principal catalysts behind the recovery in risk appetite. The first was the market registered as significantly oversold in mid -October, reaching levels that typically see a subsequent rebound. The second catalyst was speculation that the Federal Reserve was becoming increasingly concerned about tightening too aggressively given mounting recession headwinds.
Exhibit 1: A robust recovery in the latter half of October
Source: Wilshire. Data as of October 31, 2022.
October saw a continued preference for Value vs Growth style
A key attribute of the recovery in risk appetite was the notable preference for Value over Growth as measured by the FT Wilshire 5000 style indexes. In October the Large Cap Value style index delivered a return of 11.6% while the Large Cap Growth style index only appreciated 4.2%. This rotation has been a dominant theme through the course of 2022 with Value outperforming Growth by 21.3% year to date.
Exhibit 2: A continuation of the sustained preference of Value vs Growth in 2022
Source: Wilshire. Data as of October 31, 2022
Financials and Energy sectors delivered the largest performance contributions
Dissecting market returns using sector weighted contributions ( the combined impact of sector performance and sector weighting) October saw the largest positive contribution from Financials followed by energy. Real estate and transportation sectors delivered the lowest contributions.
Exhibit 3: October performance driven by Financials and Energy
Source: Wilshire. Data as of October 31, 2022
The Year-to-Date drawdown of-24.9% is the sixth largest in 40 years
The YTD drawdown of-24.9% as of 30th is now the sixth largest witnessed over the last 40 years as shown in Exhibit 3.
Exhibit 4: Putting the YTD drawdown into perspective
Source: Wilshire and Refinitiv. Data as of October 31, 2022
