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October 2021 Market & Economic Update

October 2021 Market & Economic Update

 

10/05/2021

September lived up to its reputation of being historically negative for stocks. For the month, the S&P 500 declined 4.9%. The worst monthly performance since the March 2020 Covid induced crash.. The long-term US treasury bond index measured by the symbol TLT (US bonds 20 years and longer) declined 3% for the month.  And this Bond index is now down 7.8% for the year.  As seen below, though, stocks are still up nicely for the year, even after the September decline. (source: cnbc.com)

 

 

As of 9/30/2021 Returns

 

US (S&P 500, Symbol: SPY)                               Up 15.9%

The Dow Jones (Symbol: DIA)                           Up 10.9%

The NASDAQ Composite                                 Up 12.2%

Europe (Euro Stoxx 50, Symbol: FEZ)               Up 9.1 %

Emerging Markets (Symbol: EEM)                     Down 1.4%

Bonds (Total Bond Index, Symbol: BND)          Down 1.78%

Gold (Symbol: GLD)                                              Down 7.9%

 

(source: cnbc.com)

 

After a strong run through all of 2021, stocks of all stripes showed they are tired the past few weeks. Is it lingering worries over how the US will address its debt -  beyond a newly passed budget stopgap bill in congress? Or more evidence that China’s manufacturing is now in recession? Will oil hit $100 a barrel? Or are stock valuations just too high?

These questions remain unanswered and debatable. And when you add in the news, by the Federal Reserve, that they plan on reducing and eventually eliminating their $120 billion a month bond purchases (pumping money into the system) and begin slowly raising short term rates (that are near zero now) late next year and in 2023, then the market is at a point of digesting all these questions and data.  Plus, next year’s corporate profits could be a bit lower than expected because of the likely increase in corporate tax rates from 21% to 26.5% as proposed by the Biden Administration (stocks are valued on after tax corporate profits) and you have uncertainty in the market now.

In Washington Democrats and Republicans are currently engaged in inter and intra party standoffs over government funding, infrastructure investments, and the US’s ability to issue debt. We believe that despite the heightened political environment, cooler heads should prevail.

Politics isn’t the only thing hurting stocks recently. Pressure by an increase in bond yields – the 10-year US treasury bond topped 1.54% this past week (bonds decline in value when yields rise). The highest since June. (source: barrons.com) While rates are likely to head higher because of the current inflationary environment, we don’t see them rising to a level that hurts stocks. This coming Friday we get the September employment report, and we will see if the stoppage of unemployment benefits brought some back to the workforce. And in the next 2-4 weeks companies will begin reporting their 3rd quarter profits. We expect that to be positive. This data is needed for the market to get clarity on the intermediate term picture.

We feel this break in stocks will serve the long-term uptrend well. So, while October might continue September’s volatility, we see positive corporate and economic data and the recent decline in covid cases and deaths as a catalyst for intermediate and long term upside. Albeit this growth is more than likely will be at a more modest level when compared to the last 12 months.

 

In the meantime, please feel to reach out to us if you have any questions or concerns.

 

Sincerely,

 

 

Sincerely,

www.SCapitalAdvisors.com

 
Neal W. Mufti, CFP®                                                        M. Mike Iftaiha, CFP®

Managing Director                                                             Financial Advisor

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