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October Market Review Thumbnail

October Market Review

Markets Rebound in October; Hit All-Time Highs

The S&P 500 rebounded from a challenging September, climbing 7.0% in the month of October.  The month’s gains pushed the market to an all-time high and brought the year-to-date S&P 500 return to 24.0%.

What Worked

Many areas of the market participated in the rally.  Sectors aligned closely to the economic recovery saw the sharpest rebound, with Energy, Materials and Industrials all gaining between 6.9% and 10.4%.  While these businesses noted the challenges of supply chains and labor shortages, they also saw exceedingly strong consumer and business demand.  Earnings in these sectors generally exceeded expectations, and 4th quarter estimates show these sectors contributing heavily to the 21.6% year-over-year earnings growth for the S&P 500.

A Deeper Look at the Consumer Discretionary Sector

The Consumer Discretionary sector also produced strong October returns, gaining 10.9%.  Approximately 50% of this sector is comprised of just two companies: Amazon and Tesla.  Amazon experienced marginal gains during the month (+2.7%), as supply chain and labor challenges disproportionally impacted their businesses.  However, Tesla, a favorite of momentum investors, gained 43.7%.  Most of these gains occurred after the company received a $4.2 billion vehicle order from rental car company Hertz.  Tesla’s monthly gains translated into approximately $330 billion in additional market capitalization, roughly the entire size of Procter & Gamble.  While we appreciate what Tesla is doing in the electronic vehicle and renewable energy industries, the move in the stock price is not aligned with the fundamentals of the company.  Though Tesla is not a holding in our Large Cap stock strategy, more than 1/4th of the portfolio stocks produced double-digit gains during October.

What We're Watching

As we move into the final two months of the year, we are generally optimistic.  Supply chains and labor availability will remain lingering challenges, but analysts are generally well aware of these issues and their impacts.  The U.S. Federal Reserve will likely begin curtailing bond purchases in November, but interest rate increases aren’t projected until at least the second half of 2022.  Additionally, the U.S. economy is expected to grow at a 4% rate in 2022 (Factset Research), boosted by a rebound in post-Covid spending and fiscal policies that are likely to push more money into the economy.

 

As always, we welcome your questions and comments.  With the end of the year quickly approaching, we encourage you to contact us if you are interested in reviewing your financial plan before year end.

 

We hope that you and your family have a wonderful Thanksgiving holiday.