October Stock Market Review

Paul Tarins, RICP®,WMCP®,CSRIC™

October Recap:  Strong Recovery Follows Rocky Market Period

As often happens during bull markets, September’s stocks downdraft was followed by an even stronger rebound in October. After more than a month of narrow retreat taking a near -5% toll on the S&P 500 at its worst, the index finished October back at all-time highs, up +7% (‘SPY’ ETF proxy). This was the strongest monthly performance since November 2020, with the US large-cap index now higher by 24% for the year. While also positive, overseas issues lagged once again, leaving globally diversified portfolios slightly behind domestic-only portfolios on the year.

Why the dramatic change in direction? Last month we noted earnings would set the tone for the balance of the year, and so it was. Despite concerns over a relative slowdown, more companies beat their earnings estimates for the third quarter than average, and by a wider margin at that (Factset, “S&P500 Earnings Season Update,” 10.29.21). Taken together, earnings have been +10.3% above estimates, well over the five-year average of +8.4%. 

Other positives supporting the change in tenor include:

• Congress kicked the can on government funding with a continuing resolution and short-term debt hike through early December (NBC News, “House passes short-term debt limit hike,” 10.12.21);
   
   
• Price had become oversold over the multi-week decline while total losses remained well contained, providing technical confidence to participants to buy back in; and
   
   
• We exited the seasonally difficult period of the year, and now face some of the strongest, most consistent months of the year.
   
   

Among other asset classes, global real estate and commodities performed in the same range as stocks, up +6.3% (‘RWO’) and +5.8% (‘DBC’), respectively. Between the economic reopening and energy costs on the rise due to distribution difficulties, commodities are up a whopping +45.2% year-to-date. Bonds, however, fell just slightly and remain modestly down on the year.

Fund managers may feel pressure to keep pace with strong market gains, providing a floor to markets even though it feels as if the traditional “Santa Rally” may have come early. While markets will still need to contend the withdrawal of quantitative easing, the debt ceiling and conclude infrastructure negotiations before year end, it is true that strong years through the third-quarter also tend to end on a high note. Meanwhile as we continue to monitor markets and portfolios, we wish you all a warm holiday season ahead.  

Source: Index proxies based on ETF time-series data from CSI Data, Inc. Data deemed dependable, but not guaranteed. Past performance is no guarantee of future performance or profitability. Statements herein do not constitute individual investment advice.

 

Paul Tarins is an investment adviser representative of and offers investment and advisory services through Portfolio Medics, a registered investment adviser. Nothing contained herein should be construed as a solicitation for investment advisory services. Sovereign Retirement Solutions and Portfolio Medics are not affiliated.