By Megan Horneman. © Verdence Capital Advisors
- GDP slowest since pandemic rebound.
- Inflation rising at fastest pace since 1991.
- Consumer resilient to rising costs.
- Global equities rebound as earnings take over.
- Commodity surge continues.
A much better than expected U.S. earnings season, gridlock in Washington and a resilient U.S. consumer delivered Halloween treats early to investors. Several U.S. equity indices notched fresh new record highs in October and every U.S. Index ended the month in positive territory. Even bond investors were delivered an end-of-the-month treat as yields retreated after rising to seven-month highs. In this weekly we will review the economic and asset class performance for the month of October.
- GDP slows: After delivering stellar quarterly growth figures out of the pandemic, a global collapse in the supply chain overshadowed a solid quarter for U.S. service spending. As a result, 3Q21 GDP grew a paltry 2.0% (QoQ).
- Inflation persistent: Inflation continued to climb with the Fed’s preferred measure (PCE Core YoY) growing at the fastest annual pace seen since 1991.
- Consumer spending robust: Despite rising price pressures and mixed confidence, consumer spending remains strong. Discretionary spending (e.g., autos, furniture, electronics) is growing more than 14% (year over year).
- Manufacturing in overdrive: The ISM Manufacturing Index rose to a four-month high as manufacturers work to clear the record backlog of orders.
- Job creation disappointing: While the U.S. added a meager 194K jobs in September, initial jobless claims fell every week in October. They now sit at the lowest level seen since Mar 13, ‘20.
Global Equities-Solid Recovery From September Sell Off: After the MSCI AC World Index saw its worst one month decline since the pandemic in September, October delivered a solid rebound. Better than expected U.S. earnings and a muted interest rate environment overshadowed ongoing disruptions in the global supply chain.
- U.S. takes the lead: The U.S. led the global equity rally. The relatively muted interest rate environment helped fuel the expensive large cap growth and tech stocks over small and mid cap value stocks. The Nasdaq Composite Index posted a new record high in October as did the S&P 500, the Russell 1000 Growth and Dow Jones Industrial Average. Of the S&P 500 sectors, all were positive for the month but energy and consumer discretionary led the gains.
- Europe outperformed Japan and emerging markets: European stocks outperformed stocks in Japan and the rest of Asia. Renewed COVID outbreaks in China, inflation fears, and slower growth hampered the performance of emerging markets and Japan.
Fixed Income – Whipsaw for Yields. After long-term Treasury yields jumped to a seven-month high in October on inflation fears, they fell modestly towards month-end. As a result, the Bloomberg Barclays Aggregate Index was relatively flat for the month.
- Defensive pays off. Being defensive with duration was beneficial with October’s volatility. Floating rate and leveraged loans outperformed intermediate and long-term bonds. In addition, investment-grade credit outperformed high yield and emerging market bonds.
Commodities: Index as Seven-Year High. The Bloomberg Commodity Index jumped again as shortages of a broad array of commodities is boosting the entire sector. Crude oil led the gains by posting its best rally in eight months and reached a seven-year high. Industrial metals had their best one-month gain in six months led by copper. After climbing to an 11 year high, natural gas prices retreated on a better weather outlook.
This material was prepared by Verdence Capital Advisors, LLC (“VCA”). VCA believes the information and data in this document were obtained from sources considered reliable and correct and cannot guarantee either their accuracy or completeness. VCA has not independently verified third-party sourced information and data. Any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur. These projections, market outlooks or estimates are subject to change without notice. This material is being provided for informational purposes only and is not intended to provide, and should not be relied upon for, investment, accounting, legal, or tax advice.
Past performance is not a guarantee of future results.
Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product or any non-investment related content, made reference to directly or indirectly in these materials will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any discussion or information contained in this report serves as the receipt of, or as a substitute for, personalized investment advice from VCA. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. All indexes are unmanaged, and you cannot invest directly in an index. Index returns do not include fees or expenses.
By Megan Horneman