- Stocks were mostly positive last week. We saw global markets (represented by the MSCI All Country World Index) up 1.6% and domestic stocks (represented by the S&P 500 Index) up 2.0%. U.S. small companies (represented by the Russell 2000 Index) led the way up 6.1%.
- The monthly jobs report came out on Friday, which showed that 531,000 jobs were added in the month of October and the unemployment rate fell to 4.6%. That level of job growth exceeded most expectations.
- Corporate earnings season is coming to an end in the U.S. For the third quarter, FactSet is reporting that 81% of companies beat analyst earnings expectations. We still see corporate earnings as the number one reason to be optimistic for equity markets despite their record price levels.
- As we expected, the Fed announced that they’re going to start tapering their asset purchases. The plan is to continue purchasing assets, but doing so at a slower and slower rate. They set the expectation that they’re targeting to finish around June of 2022, which will then likely open up the conversation for interest rate increases. This announcement was largely priced into markets, so we didn’t see much reaction.
- Over the last decade, we believe investors have lost some perspective on how concentrated the U.S. market has become. Below is a graphic from Invesco and Bloomberg showing the concentration level of the S&P 500 Index (which is a proxy of U.S. large companies). Those top five companies represent a 22% weighting in the index. By comparison, the top five names in the same index back in 1999 (another very concentrated time in markets) made up 18%. The biggest difference is that these companies also happen to be the most profitable in the country, and largely responsible for all of the earnings growth over the last decade.
I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.