Updated October 15, 2021
Our investment team remains committed to sharing regular updates and market insights to keep you informed. Please look for our next update on November 5.
Stock Markets Stabilize
After a rough September, where major large-cap indexes were down 4 to 6 percent, October has been much better to equity markets so far. Company earnings season started this week with a number of major banks releasing third-quarter results. The earnings reports will help shed light on how the Delta variant spike in COVID-19 cases and supply chain issues affected the economy during the quarter. Earnings are expected to be quite strong as robust demand has allowed firms to increase prices, offsetting higher input costs.
The S&P 500 remains up more than 18 percent year-to-date. The Dow Jones Industrial Average and tech-heavy NASDAQ indexes are up approximately 14 percent and 15 percent, respectively.
Mixed Jobs Data
Last Friday’s monthly labor report was decidedly mixed. The economy added a disappointing 194,000 jobs during September, well below analyst expectations of nearly 500,000. Employment losses in education and health care accounted for much of the miss. Vaccination mandates may have played a role in these areas. The labor force participation rate was slightly lower as well, at 61.6 percent, well below the pre-pandemic level of 63.3 percent.
However, other metrics within the labor report painted a more positive picture. The unemployment rate fell sharply to 4.8 percent in September, down from 5.2 percent the previous month. The average hourly work week increased and average hourly earnings were up 4.6 percent year over year. Job openings (JOLTS) declined in August, but remain at extremely high levels, approximately 35 percent above pre-pandemic levels. U.S. Job “Quits” surged to a record high by a wide margin, which indicates that workers are confident about finding a new job.
Inflation Remains Elevated
Wednesday’s Consumer Price Index (CPI) was slightly higher than expected at 5.4 percent. The Core CPI, which removes volatile food and energy prices, was unchanged at 4 percent. U.S. Wages and Salaries are up 10.4 percent year over year. With home prices and rents also surging, the increase in inflation is appearing less transient and more likely to stay for a while. The biggest visible threat to the economy right now is that accelerating inflation could bring significantly higher bond yields and aggressive Federal Reserve action.
After rising in September, the benchmark 10-Year U.S. Treasury yield has stabilized in the 1.5-1.6 percent range. This is typical of interest rates; large moves tend to be followed by periods of relative calm. However, given the higher levels of inflation, strong growth and the Federal Reserve likely beginning to taper its asset purchase program, we expect intermediate and long-term rates to continue to trend higher into next year.
What Should I Be Doing With My Investments?
We encourage you to pay attention to the latest developments, but not to lose sight of your long-term investment strategy. Reach out to our investment team to discuss your options and reaffirm your timeline and goals. Call our investment team at (518) 415-4401.