Despite October historically being the most volatile month of the year for stocks, last month proved to be the strongest so far in 2021. The S&P 500 and the Nasdaq 100 finished October at all-time high closing levels, despite Big Tech earnings misses.
Many analysts were expecting a rougher ride in October based on several factors, including volatility in September, the upcoming Fed Taper and subsequently higher interest rates, prolonged inflation, employment jitters, and the Congressional infrastructure debate. However, the stock market had other plans. I’ve used this word before, and I will use it again: U.S. equities have been resilient. Teflon comes to mind.
For the month of October, the S&P 500 gained 6.91%, the Nasdaq 100 added 7.90%, and the Dow Jones Industrial Average increased by 5.84%.
Employment Fits and Starts
While October ended up being the best month of the year thus far for U.S. equities, there were some early month headwinds. Non-farm payroll data released on October 8th was a huge disappointment. 194,000 jobs were added during September, versus the 500,000 expected. Saving the day, however, was an upward revision to the August jobs data.
The S&P 500 ($SPX) sold off slightly for a few days after this data was published. Ultimately, it found its footing and began its ascent on October 13th on the heels of inflation data and the Federal Open Market Committee (FOMC) minutes.
October Inflation Data
October’s Consumer Price Index (CPI) data release showed a 5.4% increase in consumer prices over this time last year, greater than experts’ predictions and the previous month’s increase of 5.3%. The most notable segments of price increases were in food, energy, and housing.
Month over month, CPI showed a gain of 0.4%. But it feels like more when we’re going shopping, wouldn’t you agree?
The FOMC minutes from the last Federal Reserve meeting were published on the same day as the CPI data release. The minutes foreshadowed the Fed’s tapering operation and provided additional clarity about the timeline and tapering amount.
Specifically, the minutes showed a $15 billion monthly taper but did not announce the decision to proceed with it. The tapering process is expected to begin by the end of the year, perhaps sooner than later.
Markets love clarity and unsurprisingly rose following the release of this information.
Retail Sales Shine
Higher prices? U.S. consumers don’t seem to mind. Retail sales data jumped unexpectedly in October. Expectations were for a decline of 0.2% from the previous month, and instead, we got an increase of 0.7%.
Automobile sales contributed to the rise, with notable increases also in sporting goods, hobby stores, gas stations, and clothing. This data sets a tone of consumer strength going into the holiday shopping season, even with considerable price hikes across the board.
Q3 Earnings Season
Earnings season was off to a stellar start until Big Tech releases came to town. Before the Big Tech earnings week, 84% of companies had beaten earnings estimates.
The tech giants told a different story. Amazingly, Amazon ($AMZN), Apple ($AAPL), and Facebook (soon to be called Meta) ($FB) all posted rather disappointing results. Google’s ($GOOG) results were okay, and Microsoft ($MSFT) had better than expected results.
It seems like the supply chain bottlenecks have created issues for Big Tech, and there’s seemingly no shortage of demand heading into the holiday shopping season.
October provided a pleasant surprise after a somewhat rocky September. Job growth would be nice to see in the upcoming data release, and we will also see what seasonal employment looks like for the upcoming holiday season.
P.S. It’s time to start stocking up on those Thanksgiving goods and Christmas gifts because when they are gone, they are gone!
Disclosure: Emerald Advisors, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.