October 2021 in Review

Daniel Zeigler, CFP, CMFC, Portfolio Manager

Hi everyone, this is Dan Zeigler, Portfolio Manager at Midland Wealth Management. Today I wanted to provide a quick recap for the markets for the month of October.

After the S&P 500 experienced its first 5% decline in September, which it had been nearly 42 weeks since the last 5% correction, October certainly did not disappoint investors. Leading the way for the month was large cap growth stocks, which averaged a return of 9%, while the S&P 500 core index was up close to 7%. The S&P 500 index is now up 24% for the year.

Helping drive the market higher in October has been the continued growth of corporate earnings and the likelihood that corporate taxes will not be increasing this year as previously expected. Overall, 50% of companies in the S&P 500 have reported actual results for the 3rd quarter and of these companies, 82% have reported actual earnings per share above analyst estimates. Analysts are expecting earnings growth of more than 20% for the 4th quarter and earnings growth of more than 40% for the full year. Revenue trends have also been positive, with 75% of the S&P 500 companies reporting actual revenues above estimates.

We did get some disappointment in the 3rd quarter, as GDP showed the U.S. grew by only 2% versus expectations of 2.6%, as the U.S. recovery was hurt by the virus surge and supply chain troubles. Consumption, which is the largest components of U.S. GDP comprising about two-thirds of the overall economy, slowed to 1.6% in the 3rd quarter, also marking the weakest pace since the 2nd quarter of 2020. We are still expecting overall GDP growth in 2021 to be between 5-7%.

Short-term interest rates have been gradually moving higher and the yield curve has been flattening, with the 2-year Treasury increasing 20 basis points in October with a current yield of around 52 basis points. Driving yields higher include the more persistent inflationary pressures, which has moved forward expectations for a rate liftoff by the Fed as early as June of next year. All eyes will be on the Fed’s 2-day policy meeting which concludes on Wednesday, and policy makers are fully expected to announce that the central bank will be scaling back its $120 billion in monthly asset purchases.

As the year winds down, we wanted to remind everyone that mutual funds are expected to be reporting larger capital gains distributions later this year, given the robust market performance over the last several years. We will be continuing to be keeping a close eye on both fiscal and Fed policies as we close out the year. Thanks for joining me today for the October market recap.