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Week in Review: October 29, 2021

Recap & Commentary

Market returns for the week were mixed as investors focused on earnings, economic data, and ongoing changes to President Biden’s social spending bill. While the absolute level of returns was relatively modest, the S&P 500 set new record highs on four out of five of the week’s trading days.

Economic data was highlighted by 3Q21 GDP, which increased just 2.0%, less than the consensus forecast of 2.7% and well below the 6.7% pace recorded in 2Q21. Growth was affected by both the surge in Delta-variant coronavirus cases, as well as ongoing supply chain disruptions.

On Wednesday, the Bank of Canada surprised investors by announcing the end to its bond buying program and pulling forward its timeline for when it expects to begin raising interest rates.  The move highlighted the pressure many central banks currently face as strong economic growth, higher energy prices, and supply chain disruptions have placed strong upwards pressure on prices. It is widely expected the U.S. Federal Reserve will announce its tapering plans at its upcoming meeting. Of interest, will be how quickly the Fed intends to conclude the program.

Through Friday, 56% of S&P 500 companies had reported 3Q21 earnings. According to industry group FactSet, thus far, 82% of those companies have exceeded analyst estimates. Currently, aggregate earnings growth for the quarter is forecasted to be 36%, up from 28% at the beginning of earnings season.

Economic Bullet Points

Third quarter GDP growth slowed to 2.0%, affected by surging Delta variant coronavirus cases, and ongoing supply chain issues. Consumer spending slowed from 12% in 2Q21, to just 1.6% in 3Q21. Spending on services rose 7.3%, while spending of goods fell 9.2%, led by a 26% decline in durables. Ongoing supply chain issues weighed heavily on motor vehicles and parts, which reduced GDP growth by 2.4%. As supply chains begin to normalize, continued strong demand for autos and other goods should benefit GDP growth moving into 2022.

Consumer confidence rose modestly in September, benefitting from consumers’ improved views on both current and future conditions. In a positive sign, the proportion of consumers planning to purchase homes, automobiles, and major appliances all increased in October, which bodes well for 4Q21 GDP growth.

The Fed’s preferred measure of inflation, core personal consumption expenditures (PCE), rose 0.2% in September, down from the 0.3% pace recorded in August. Compared to a year ago, core PCE rose 3.6%, unchanged from August and tied for the fastest pace since 1991.

Personal incomes declined 1.0% in September, reflecting in part the expiration of enhanced unemployment benefits.  Nonetheless, spending was strong at 0.6% as consumers dipped into savings, reducing the savings rate from 9.2% to 7.5%.

Durable goods orders fell 0.4% in September, dragged down by volatile transportation sector orders.  Core business spending, however, rose 0.8%.

Of Note

On Friday, the US Food and Drug Administration approved the Pfizer COVID-19 vaccine for use in children ages five through 11. The decision now awaits final approval from the Centers for Disease Control and Prevention, expected as soon as the first week of November.

S&P 5001.3%
Small Caps0.3%
Intl. Developed-0.1%
Intl. Emerging-2.2%
Commodities-0.4%
U.S. Bond Market0.5%
10-Year Treas. Yield1.56%
US Dollar0.5%
WTI Oil ($/bl)$83
Gold ($/oz)$1,785

The Week Ahead

  • Sept. Employment Report
  • ISM Manufacturing
  • ISM Services
  • Trade Balance
  • Factory Orders

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