October Market Recap
November 1, 2021
October has a reputation for being an especially bad month for stocks. The market’s crash in October 1929 helped spur the Great Depression. Black Monday in October 1987 remains the single-worst day in the history of the Dow Jones Industrial Average (-22.6%). Even last year proved to be relatively ugly. October 2020 brought the Dow’s largest monthly loss (-4.6%) of this latest bull market.
That history makes it especially notable that this year, October brought one of the strongest months in the last decade. The S&P 500 gained 6.9% last month. Only five times in the last 10 years have we seen a better month for US stocks.
All 11 sectors in the S&P 500 were positive. Consumer Discretionary (+10.9%) and Energy (+10.2%) recorded the most significant increases. Communication Services (+2.6%) and Consumer Staples (+3.7%) booked the most modest gains.
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We’ve been reminding clients for much of the year that corporate earnings would face a higher bar late in 2021 once year-over-year growth was no longer being measured against pandemic-era figures. We have now reached that point, and yet earnings continue to exceed consensus expectations, even though the pace of growth has slowed.
Midway through third-quarter earnings season, 82% of reporting companies have beaten profit projections. Cumulatively, S&P 500 companies are on pace to grow by 37% from a year earlier. While the jukebox volume might be slightly lower, the hits keep right on playing.
Stocks responded by climbing to record levels. All three major US equity indices finished October at or near all-time highs.
A disappointing GDP report from the Bureau of Economic Analysis hardly dampened the enthusiasm. Initial numbers suggest the U.S. economy grew at an annualized rate of 2% in the third quarter, down from 6.7% annualized in Q2 and the slowest such increase of the post-pandemic recovery.
Recent economic growth was stronger in Europe. The 19-nation eurozone (those countries using the euro as their currency) grew at an annualized rate of 9.1% in the third quarter, boosted by the lifting of COVID-19 restrictions that have remained generally more rigid than in the US.
Headlines out of Washington point toward the eventual government infrastructure deal having a smaller scope and lower pricetag than originally thought. As politicians haggle over how to pay for the spending, proposed increases to personal tax rates, corporate tax rates, and capital gains rates have all been met with strong resistance. Major changes appear unlikely.
10-year Treasury yields climbed to 1.7% on October 22, a six-month high, before retreating to 1.56% at month’s end. Rising yields are an acknowledgment of higher inflation, which remains stubbornly elevated despite insistence by some that higher prices are merely “transitory.” The latest Consumer Price Index (CPI) data showed annual inflation of 5.4%, the fifth month in a row with a reading of 5% or more.
The Federal Reserve keeps inching toward a tapering of its stimulus (meaning “less bond buying”) by year-end, although no significant changes occurred in October. Fed Chair Jerome Powell and Co. are expected to announce more details in the coming days.
Oil prices rose steadily in October, moving higher for 10 weeks in a row to their highest level since 2014 before finally booking a weekly decline late in the month. West Texas Intermediate Crude finished October at $83.57 per barrel (compared to $37 per barrel a year ago). The average price of gasoline in America is now $3.40 per gallon, meaning it costs just under $60 to fill up the tank in an average sized vehicle.
Small-cap stocks underperformed in October. The Russell 2000 gained 4.2% last month and remains below its mid-March peak. International equities also lagged, relatively speaking. Non-US Developed Markets increased 3.2% in October. Emerging Markets returned just 1.1%.
Marks Group Wealth Management performs in-house analysis on companies. Statistical information on mentioned companies is obtained from company reports, news releases and SEC filings. The information set forth herein has been derived from sources believed to be reliable, but is not guaranteed as to accuracy and does not purport to be a complete analysis of the securities, companies or industries involved. Opinions expressed herein are subject to change without notice. Additional information is available upon request.
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Stock investing involves market risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. International and emerging market investing involves special risks such as currency fluctuation and political instability. These risks are often heightened for investments in emerging markets. No strategy assures success or protects against loss. Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.
Past performance is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.
MSCI EAFE Index consists of the following 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.
The Barclays Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment-grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.
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