Market Commentary – October 2021
October proved to be one of the best months for equities in 2021, with each of the benchmark indexes listed here enjoying solid gains. The S&P 500 has its best month since November 2020. the Nasdaq picked up over 7.25%, the largest monthly advance in more than a year. Strong third-quarter corporate earnings data helped ease investor concerns that rising inflation, supply-chain bottlenecks, labor shortages, and rising coronavirus cases would hamper corporate America. Year to date, each of the indexes is well over 16.00% higher than its respective closing value, with the S&P 500 and the Nasdaq more than 20.00% higher.
Wall Street's strong October performance came despite a notable slowdown in economic growth as third-quarter GDP rose 2.0%, following a 6.7% increase in the second quarter. Job growth slowed, although the number of unemployment claims also decreased. Inflationary pressures appear to be more than transitory as the latest Consumer Price Index showed prices rose 0.4%, while producer prices increased 0.5%. the housing sector enjoyed solid gains as sales of both new and existing homes rose. Each of the market sectors advanced, with energy (16.9%) and consumer discretionary (9.3%) leading the way.
Ten-year Treasury yields inched higher in October, the dollar dipped dower, gold prices increased nearly 1.5%, and crude oil prices rose more than 10.00% to $83.27 per barrel. The national average retail price for regular gasoline was $3.38 per gallon on October 25th, up from the September 27th price of $3.17 per gallon.
As of October 31 st
|Monthly Change||YTD Change|
|S & P 500||3,756.07||4,307.54||4,605.38||6.91%||22.61%|
|Federal Funds||0.00% – 0.25%||0.00% – 0.25%||0.00% – 0.25%||0 bps||0 bps|
|10-yr Treasury||0.91%||1.52%||1.55%||3 bps||64 bps|
*Chart reflects price changes, not total return
Last Month's Economic News
- Employment: The pace of job gains continued to slow in September, as 194,000 new jobs were added, well off the pace set in August (366,000) and July (1,091,000). Through the first nine months of the year, monthly job growth as averaged 561,000. The unemployment rate declined by 0.4 percentage point to 4.8% in September. The number of unemployed persons fell by 710,000 to 7.7 million. Both measures are down considerably from their highs at the end of the February-April 2020 period. However, they remain above their levels prior to the COVID-19 pandemic (3.5% and 5.7 million, respectively, in February 2020). In September, notable job gains occurred in leisure and hospitality (74,000), professional and business services (60,000), retail trade (56,000), transportation and warehousing (47,000), and in information technology (32,000). Employment decreased by 144,000 in local government education and by 17,000 in state government education. The number of persons not in the labor force who currently want a job was 6.0 million, down by roughly 300,000 from the August total. The labor force participation rate in September, at 61.6%, dipped 0.1 percentage point down from the August rate and has remained within a narrow range of 61.4% to 61.7% since June 2020.
- FOMC/interest rates: The Federal Open Market Committee did not meet in October. The next scheduled meeting is November 2-3. Nevertheless, several members of the Committee, including Chair Jerome Powell, have indicated that The Federal Reserve is likely to begin scaling back its asset purchasing program as early as November. Also, Powell acknowledged that inflationary pressures may continue to increase for a longer period than previously anticipated, which could prompt an in crease in the federal funds rate.
- GDP/budget: According to the first, or "advance" estimate from the Bureau of Economic Analysis, the economy accelerated at an annual rate of 2.0% in the third quarter after advancing 6.7% in the second quarter. Consumer spending, as measured by personal consumption expenditures, increased 1.6% in the third quarter after rising 12.0% in the prior quarter. The personal consumption price index (prices for consumer goods and services) rose 5.3% in the third quarter after climbing 6.5% in the second quarter. Excluding food and energy, the price index increased 4.5% in the third quarter compared with an increase of 6.1% in the second quarter. In the third quarter, fixed investment dipped 0.8% following a 3.3% increase in the second quarter and residential fixed investment fell 7.7% after decreasing 11.7% in the second quarter. Exports slid 2.5% in the third quarter after increasing 7.6% in the second quarter. Imports (which are a negative in the calculation of GDP) increased 6.1% in the third quarter (7.1% in the second quarter).
- Inflation/consumer spending: The Consumer Price Index climbed 0.4% in September following a 0.3% jump in August. Over the 12 months ended in September, the CPI rose 5.4%. Prices less food and energy rose 0.2% in September. Higher costs for food and fuel, as well as other items, such as new vehicles, have mainly contributed to the increase in the CPI. Food prices rose 0.9% in September, while energy prices increased 1.3% (fuel oil prices climbed 3.9%), and new vehicle prices advanced 1.3%. Shelter costs, which account for about one third of the CPI, gained 0.4% in September.
- Producer prices continued to climb in September. Prices that producers receive for goods and services increased 0.5% for the month after rising 0.7% in August and 1.0% in July. Producer prices increased 8.6% for the 12 months ended in September, the largest yearly gain since November 2010 when 12-month data was first calculated. In September, prices for services rose 0.2% (0.7% in August), and prices for goods moved up 1.3% (1.0% in August). Producer prices less foods, energy, and trade services advanced 0.1% in September (0.3% in August) and have risen 5.9% since September 2020. Energy prices jumped 2.8% in September, while prices for food rose 2.0%.
- Housing: Existing home sales rebounded from an August dip, advancing 7.0% in September. Nevertheless, over the past 12 months, existing home sales have dropped 2.3%. The median existing-home price was $352,800 in September ($356,700 in August), up 13.3% from September 2020 ($311,500). Total housing inventory at the end of September dropped 0.8% from August's supply and is down 13.0% from one year ago. In September, unsold inventory sat at a 2.4-month supply at the present sales pace (2.6-month supply in August). Sales of existing single-family homes also rose in September, climbing 7.7% after decreasing 1.9% in August. Year over year, sales of existing single-family homes fell 3.1%. The median existing single-family home price was $359,700 in September, down from $363,800 in August.
- New single-family home sales increased in September, advancing 14.0% after falling 1.4% in August (revised). Despite the recent monthly increase, sales of new single-family homes have decreased 17.6% from September 2020. The median sales price of new single-family houses sold in September was $408,800 ($401,500 in August). The September average sales price was $451,700 ($446,900 in August). The inventory of new single-family homes for sale in September represents a supply of 5.7 months at the current sales pace, down from the August revised estimate of 6.5 months.
- International Markets: Despite rising inflation in the eurozone, the European Central Bank is likely to maintain interest rates in negative territory for at least another year, diverging from other central banks including the Federal Reserve. Supply shortages, delivery bottlenecks, and labor constraints continue to drive producer prices and consumer prices higher. Consumer prices in October continued to climb in several countries including Italy (0.6%), France (0.4%), Germany (0.5%), and the United Kingdom (0.3%). China is still dealing with the economic impact of the pandemic. Unlike, the United States, which saw consumer spending rebound, China has seen consumer consumption stay subdued. In the market for October, the STOXX Europe 600 Index climbed 4.5%; the United Kingdom's FTSE increased 2.8%; Japan's Nikkei 225 Index rose 0.4%; and China's Shanghai Composite Index dipped 0.6%.
- Consumer Confidence: According to the latest report from The Conference Board, consumer confidence increased in October, following declines in the previous three months. The Consumer Confidence Index® stands at 113.8, up from 109.8 in September. The Present Situation Index, based on consumers' assessment of current business and labor market conditions, rose to 147.4 in October from 144.3 the previous month. The Expectations Index, based on consumers' short-term outlook for income, business, and labor market conditions, registered 91.3 in October, up from 86.7 in September. According to the report, consumer confidence improved in October, reversing a three-month downward trend as concerns about the spread of the Delta variant eased.
Eye on the Year Ahead
Job growth has slowed somewhat, while inflation has continued to rise. The Federal Reserve has hinted that it will begin scaling back asset purchases as early as November. With inflationary pressures mounting, it is possible that an upward adjustment to the federal funds rate may occur sooner rather than later. In addition, there may be follow-up items from the G-20 meeting held on October 30th in Rome. Items on the agenda included high energy prices, supply chain problems, and a global minimum tax rate. In addition, Congress is likely to continue working to reach a deal on a $1.75 trillion economic and environmental bill in November.
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