Market Update October 25, 2021

Photo by Pawel Czerwinski on Unsplash

Economic data for the week included manufacturing indexes which leveled off a bit from highs, while on the positive side, jobless claims fell to new cyclical lows. Home sales and housing starts were mixed, with prices moving higher and inventories remaining tight.

Global equity markets continued their positive performance, due to strong earnings results for the prior quarter. Bonds suffered, as interest rates rose again in keeping with improving conditions. Commodities were mixed, with metals falling back, while energy again experienced gains.

U.S. stocks fared well last week, as earnings results continued to come in positively, in line with or better than expectations. Every sector gained last week, led by health care, financials, and utilities. Communications lagged with flattish returns, weighed down by concerns over social media advertising revenue for the remainder of 2021 (interestingly, blamed on new iPhone privacy settings to some extent). Real estate fared positively, up several percent, despite a continuation of the rise in interest rates.

Debate continues over the amounts and timeline surrounding the Congressional infrastructure plan. As announced by the President specifically, in response to recent Senate negotiations, it has been steadily downgraded from around $3.5 trillion to closer to $2 trillion (as many expected would happen eventually), which included a paring back in amount and timing in a variety of the bill’s components. Helping equity sentiment were reports that proposed corporate tax increases could be pared back or eliminated entirely from the bill.

Foreign stocks fared positively as a whole last week, although Europe gained to a lesser degree than U.S. stocks. Stronger earnings results appeared to lead the way, as they have domestically. Japanese stocks suffered declines. Emerging market stocks were mixed, but pulled down by a -10% decline in Brazil, due to government efforts to provide more fiscal stimulus to citizens that has put additional pressure on the real (an example that emerging nations have far less ability to effectively provide massive stimulus than developed nations).

U.S. bonds suffered as interest rates rose—almost to 1.7% on the 10-year treasury. Declines of around a half-percent were similar across the board, while floating rate bank loans rose a slight amount. Helped by a minor drop in the dollar, developed market bonds were flat, while emerging bonds declined. The ability of Chinese property developer Evergrande to make an important interest payment alleviated markets concerns somewhat, although there are several more payments to go before now and year-end.

Commodities were mixed on the week, with gains in precious metals, and minor increases in agriculture and energy, offset by a pullback in industrial metals (aluminum and copper, specifically). The price of crude oil rose by over 2% to just under $84/barrel.

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.