U.S. stock markets rallied to begin the fourth quarter as the S&P 500 index gained almost 8 percent in the month of October despite the fact that the yield on 10-year U.S. Treasury Notes rose to 4.10 percent from 3.83 percent at the end of September and a barrel of West Texas Intermediate crude oil rose to about $86.50 from just below $80.
Volatility remained elevated and a case can be made that the Federal Reserve may have influenced the market in a way that could backfire. On Friday October 21, 2022, an article appeared in the online version of the Wall Street Journal (not the print version) just before 9:00 am. It was significant as that Friday happened to be an option-expiration Friday where hundreds of billions of dollars-worth of options, futures, and derivatives expire.
The article quoted several members of the Fed’s Federal Open Market Committee (FOMC), which also happened to be the last piece of public information prior to the “blackout” ahead of the official FOMC meeting. The article hinted that the Fed would debate the size of future hikes, giving some hope that the so-called “pivot” away from future interest rate hikes could be coming.
As a result, stock and bond markets staged a vigorously rally.
On November 2, 2022, Federal Reserve Chairman Jerome Powell seemed to pull the proverbial rug out from markets when he said “it’s very premature to be thinking about pausing” interest rate hikes as the Fed has “some ground to cover” in its attempt to restore low, stable inflation, “and we will cover it.”
For that reason, stock and bond markets sold off hard.