Monthly Market Wrap: October 2021
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It’s almost as if September never happened.
Last month, market headlines were generally more sour than not, as September 30th marked the first time in 2021 where the Dow, NASDAQ, and S&P 500 were all at least 4.75% below their all-time highs. September also wiped away most of the indices’ Q3 gains, bringing levels back to around where they ended the second quarter.
Despite the pessimism, markets weren’t the least bit spooked in October. The three major indices clawed back September’s losses and finished the two-month period of September 1st to October 31st in positive territory.
To date, the S&P 500 is up 22.6%, the Nasdaq 20.3%, and the Dow 17.0%. Despite September’s drawdowns, the three major indices set new all-time highs in the very next month of October. Like a kid fighting the cold and rain in the name of trick-or-treating, this stock market is resilient.
As you munch away on that stash of Halloween candy, balance your diet with these key developments from October:
• Off the YCharts! Has Christmas Come Early for the Supply Chain?
• Major Index Returns: Equities Rebound, Bonds Flat Amid Easy Monetary Policy
• Sector Movement: No Losers in October
• Hot Stocks of the Month: Semis Conduct Gains, Tesla Joins $1T Club
• Laggards & Losers: Q3 Earnings Disappointments
• Economic Data: Unemployment Claims Fall to Low, Yet Job Openings Remain Plentiful
Off the YCharts! Has Christmas Come Early for the Supply Chain?
As we pointed out last month in our Quarterly Economic Update, the supply chain remains a focal point in the news, company earnings calls, and economic forecasts. So what exactly is the problem, you might ask? The growth in US Retail Sales has significantly outpaced the rebound in US Retail Trade Inventories, with sellers and manufacturers both struggling to keep pace with demand. At September’s end, the US Retail Trade Inventory-to-Sales Ratio fell to 1.1—well below the 1.5 average since 1992. That figure means there is just 10% of additional inventory on hand for every sale, compared to the typical 50% cushion.
Increased consumer demand has led to record high vendor lead times. The Richmond Fed’s Manufacturing Vendor Lead Time Index is currently more than 5x its 25-year average, while the Expected Lead Time Index is nearly 10x its own average. These abnormally high lead times caused major big-box and e-commerce retailers, including Target (TGT) and Amazon (AMZN), to unveil Black Friday deals well ahead of schedule. With expectations that in-store shoppers will return in droves this holiday season, does a resilient American consumer mean Christmas has come early for retailers? Or will a teetering supply chain deliver more coal in stockings than cheer?
Major Index Returns: Equities Rebound, Bonds Flat Amid Easy Monetary Policy
After falling victim to the “September Effect”, equity markets turned the corner in October. The NASDAQ and S&P 500 indices finished the month 7.3% and 7.0% higher, respectively, leading all major indices. Equity indices around the world overcame the September Effect as well, with International Developed Markets rising 2.5% and MSCI Emerging Markets tacking on 1%. Fixed income failed to post any meaningful returns once again as central banks around the world continue to cut rates, causing both high-yield corporate bonds and the Global Aggregate Bond Index to slip 0.2%.
Sector Movement: No Losers in October
Coming off a down September, all 11 stock sectors ended October in the black. This month’s leader was Consumer Discretionary, which jumped 12.1%. Many of its constituents, from homebuilders Lowe’s (LOW) and The Home Depot (HD) to apparel manufacturers Nike (NKE) and Ralph Lauren (RL), reported solid Q3 earnings thanks to a strong American consumer. Energy climbed 10.3% as Crude Oil continued its run higher, with the latter up 12.5% in October to around $85 a barrel. The worst performer was Communication Services, which rose just a quarter of a percent as social media stocks Snap (SNAP), Twitter (TWTR), and Facebook parent company Meta Platforms (FB) all faced earnings headwinds.
Hot Stocks of the Month: Semis Conduct Gains, Tesla Joins $1T Club
Clean energy players Enphase Energy (ENPH) and Tesla (TSLA) took the top two spots on October’s Hot Stocks list. Enphase Energy soared 54.5% on the back of better-than-expected Q3 earnings, raised Q4 guidance, and the kickoff of UN Climate Change Conference COP26, in which solar energy solutions are expected to be a major topic. Tesla shares vaulted 43.7%, and its market cap eclipsed $1 trillion, thanks to its own earnings beat and a blockbuster order for 100,000 Tesla vehicles from car rental company Hertz Global (HTZZ). Supply chain snafus didn’t deter demand for semiconductors, which greatly benefitted the Q3 bottom lines of companies Teradyne (TER) and NVIDIA (NVDA). Finally, rail carriers Union Pacific (UNP), Norfolk Southern (NSC), and CSX (CSX) earned a slew of price target increases on the back of strong Q3 earnings even as the outlook for rail traffic fell.
Laggards & Losers: Q3 Earnings Disappointments
Notable Laggards & Losers include travel cruiseliner Carnival (CCL), whose recovery remains stunted by travel restrictions as coronavirus cases and deaths spike. Speaking of COVID-19, vaccine manufacturer Moderna (MRNA) fell 10.3% in October as pharmaceutical competitor Merck (MRK) released positive clinical trials on molnupiravir, a treatment for the disease that can be taken orally instead of via injection.
The rest of October’s Laggards & Losers made the list due to missed earnings estimates, weaker guidance, price target downgrades, or a mix of all three. These names include Citrix Systems (CTXS), Twitter (TWTR), DaVita (DVA), International Paper (IP), Pinnacle West Capital (PNW), PayPal (PYPL), Universal Health Services (UHS), and T-Mobile (TMUS).
Featured Market & Advisor News
Institutional investors less confident about meeting return targets (InvestmentNews)
U.S. ETFs About to Hit $7 Trillion Milestone (WealthManagement.com)
Economic Data: Unemployment Claims Fall to Low, Yet Job Openings Remain Plentiful
September’s unemployment rate clocked in at 4.8%, falling for a third consecutive month and setting yet another pandemic-era low. Weekly claims for unemployment dropped to 281,000 as of October 23rd, a decrease of 83,000 since the end of September, marking the first time weekly jobless claims were below 300,000 since March 2020. Despite these declines in unemployment, US job openings stood at 10.44 million, which is the second highest level on record.
Production and Sales
US Retail and Food Services Sales rose 0.7% in September, but new durable goods orders fell for the first time in six months, down 0.4% as supply chain backlogs hamper manufacturers’ efforts to produce and deliver goods in a timely manner.
US New Single Family Houses Sold surged 14% in September, while Existing Home Months’ Supply dried up as well, falling 20 basis points to 2.4. As a result, the US house price index climbed 1% MoM but notched its smallest increase since May of 2020.
Have a great November! 📈
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