Broker Check

Market Commentary

November 2021


Stocks surge in October to
new all-time highs

After a stumbling and volatile end to Q3, the global financial markets rebounded sharply in October to begin Q4. Fueled by a strong start to corporate earnings season, congressional wrangling over a reduced infrastructure stimulus package and budget reconciliation, and signs of the Covid Delta variant rolling over amid higher vaccination rates, the Dow, S&P 500, and Nasdaq closed the storied month of October at all-time highs.

Further, the mid-cap S&P 400 also hit record highs in October, while gaining 5.8% for the month. Small-caps, as measured by the Russell 2000 jumped 4.2%. Three of the main US stock indexes finished October with 20%-plus year-to-date returns led by the S&P 500 up 22.6%, followed by the S&P 400 up 21.3%, and Nasdaq up 20.3%.

It’s often said, “the market climbs a wall of worry,” and October reflected that expression precisely. Following a volatile September, the market discounted the weaker than expected Q3 GDP report of 2.0% growth annualized, rising inflation concerns, and the Fed at the doorstep of announcing its tapering plans at its November meeting, to post record highs.

Overseas, stocks also posted gains in October for both developed and emerging markets albeit at a slower pace. The benchmark MSCI EAFE index gained a solid 2.4% and the MSCI Emerging Markets Index edged higher by 0.9%, as concerns about Chinese real estate developer Evergrande ebbed.

The global financial markets, per usual, have been hanging on every word from the Federal Reserve as each day was one step closer to announcing its long-awaited tapering plans to lessen its $120 billion per month pace of its burgeoning Covid response balance sheet. Given recent strong inflation readings and further economic recovery, including strides in the unemployment rate to 4.8%, all signs pointed to the November 2-3 FOMC meeting for the announcement. Interest rates, which tested 2021 highs mid-month, finished modestly higher in October. The benchmark 10-year Treasury Note yield touched 1.70% before settling at 1.55% at month-end, just 0.03% higher.

The robust October sets the stage for the seasonally strong months of November and December to close out 2021. While some volatility is anticipated, 2021 looks to finish with impressive numbers nonetheless.

October Quick Takes

  • US stocks bucked the historically scary October lore and surged across the board, with the Dow, S&P 500, and Nasdaq closing the storied month at new all-time highs
  • Tech-heavy Nasdaq led October with a 7.3% gain, while the S&P 500 jumped 6.1%, and the Dow gained 5.8%
  • Mid-caps also hit all-time highs in October gaining 5.8%, while small-caps gained 4.2%
  • Q3’21 corporate earnings season off to a strong start, with 23% of the S&P 500 reported, 84% had positive EPS surprises (FactSet) and on-pace for record setting sales (S&P Global)
  • Stocks overseas also posted October gains, though lagged the US, with developed foreign markets rising 2.4%; emerging markets edged higher 0.9%, but remained negative for the year
  • Interest rates only rose slightly in October, despite spiking to test YTD highs mid-month on rising inflation concerns and Fed tapering plans

November Update

US stocks have picked up in November where they left off October with a record-setting week, including the best weekly gain for stocks in more than four months, according to Bloomberg. Across the board, US stocks posted new all-time highs and the Dow closed above 36,000 for the first time ever.

It was a week full of news, including the Fed announcing that it will start tapering its monthly bond purchases by $15 billion per month, from $120 billion, starting later this month. At that pace, it would conclude by mid-2022 and set the stage for its first interest rate hike towards normalization by the end of the year. Nonetheless, interest rates finished down on the week, with the 10-year Treasury Note yield fall 0.10% to 1.45%, as bonds rallied alongside stocks.

The October jobs report was better than expected and the unemployment rate fell to 4.6%, not to mention a promising new Covid-19 pill from Pfizer that significantly reduces hospitalization and death in clinical trials.

Lastly, the House passed the $1 trillion Biden bipartisan infrastructure bill late on Friday night, November 5, that includes $550 billion in new spending on transportation, broadband, and utilities, according to CNBC.

The Outlook
Historically, the Fourth Quarter includes one of the most treacherous months of the year and two of the seasonally strongest. Though past performance is no guarantee for future success. This October was exceptionally strong, breaking trend, and extended 2021 gains for stocks and ended at all-time highs.

It’s time to start year end planning and looking towards 2022. New IRS retirement plan limits were just released (see below) and investors can put away more money for retirement. Our Outlook remains cautiously optimistic for year-end and for 2022 as well.

  • The Year of Transitions continues to progress and the Covid-19/Delta variant cases, mostly among the unvaccinated, are encouragingly rolling over as vaccination rates have progressed; the new Pfizer Covid-19 pill, still in trials, looks promising to help end the pandemic
  • After a Q3 economic slowdown largely due to the summer spike in Covid-19/Delta cases, as well as supply chain bottlenecks, Q4 looks set for a rebound according to the Conference Board
  • US corporate earnings growth remains strong for Q3 at 32.7% and are projected to remain strong at +20% for Q4 2021 (FactSet)
  • Valuations remain stretched with stocks at all-time highs; we anticipate some Q4 volatility with a pullback/consolidation or correction by year-end but refrain from changing course
  • Maintain diversification, discipline, and keep your focus long-term
  • Refrain from chasing returns and making large portfolio changes
  • Maintain regular contributions and a rebalancing program

Call your Nelson Advisor today at 800-345-7593 to discuss any concerns and review your portfolio.

~Your Nelson Securities Team

 *Past Performance is No Guarantee for Future Results