Corporate Earnings are Catalyst for Strong October
- Stocks were mostly positive last week. We saw global markets (represented by the MSCI All Country World Index) up 0.4% and domestic stocks (represented by the S&P 500 Index) up 1.4%.
- Below are figures for the month of October and year-to-date through the end of the month:
|*as of 10/31/2021||October||YTD|
|MSCI All Country World Index (Global Stocks)||5.1%||16.8%|
|Barclays U.S. Aggregate Bond Index||0.0%||-1.6%|
|Barclays Municipal Bond Index||-0.3%||0.5%|
- Oil fell slightly for the week, dropping below $84/barrel. That is the first time in the last 10 weeks that prices fell.
- The advanced estimate of Q3 GDP in the U.S. came in at a 2.0% annualized growth rate, which is the slowest since the recovery of the pandemic-induced recession. Some of that slowdown was a result of supply chain issues.
- Investors should be paying attention to the periodic two-day Federal Reserve meeting this week. Our expectation is that Fed Chair Jerome Powell announces some defined information on reducing their asset purchase program (also referred to as tapering).
- The below chart from Invesco is very timely. Common questions we receive are around market valuations, where it feels that stocks are extremely pricey. While certainly not cheap today, it’s very common for markets to begin pricing in a recovery in corporate earnings early after a recession. Below shows the price-to-earnings ratio (a common valuation metric) of large U.S. companies shortly after a recession. It’s pretty intuitive, where markets start to price in a recovery before corporate earnings (the denominator of the P/E ratio) actually recover. Investors always must remember, markets are forward-looking.
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.