Following a September that saw the S&P 500 give back nearly 5% of its year-to-date gains, stocks reversed course in October and headed up once again. For the month, the S&P rose 6.6% as a least a few of the headwinds that have confronted investors began to ease.

The seemingly perennial debate over the debt ceiling limit was again kicked down the road by Congress, with the next deadline for resolving the issue now set to flare back up in early December. Equally significant, the rate of spread of the Covid-19 Delta variant began to slow, at least in the U.S., with case levels flat or falling in 40 states.

Other concerns persisted. The supply chain remained snarled. At month’s end, the Associated Press reported about 100 container ships anchored outside the ports of Los Angeles and Long Beach, where 40% of all containers enter the U.S. (Source: AP News, 10/29/21) Inflation refused to go away. The Consumer Price Index (CPI) rose 0.4% in September from August, above expectations of 0.3%, and up 5.4% year-over-year (YOY), and the biggest annual gain since 2008. (Source:; 10/13/21)

The prices for many commodities moved higher, led by energy. Consumers noticed, and expectations for future inflation rose. The Fed’s 10-year break even rate projected an average annual increase in the CPI of 2.57% over the next decade, the highest level since 2013. (Source:; 10/22/21)


Looking back, looking ahead

Backward looking data continued to reflect the impact of Covid in 3Q. Economic growth as measured by gross domestic product (GDP) slowed sharply to 2.0%, down from 6.7% in 2Q.  Nonfarm payrolls missed big, with the Labor Department reporting an increase of just 194,000 jobs in September after expectations had been for around 500,000. At the same time, employment costs rose at the fastest pace on record with wages and salaries up 1.5% in the quarter, according to Bloomberg. (Source:; 10/29/21)

Prices up, growth down. Not an ideal combination, though some of that growth was most likely delayed, not lost. But it was earnings that had the last word in the month. With 56% of S&P 500 companies announcing earnings through October 29, Factset numbers showed three out of four with a positive earnings surprise. Average earnings growth was 36.6%. Valuations remained high, with the forward 12-month P/E at 21.1, above the five-year average of 18.3.

The month closed with all eyes on the upcoming Fed meeting. With both the end of tapering and plans for future interest rate increases on the agenda, November’s confab is likely to be even more consequential than usual and likely to leave investors with a lot to ponder as we head towards the end of the year.

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The S&P 500® Index is widely regarded as the standard index for measuring large-cap U.S. stock market performance.

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

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