Trick-or-Treat? October offers treats to investors this year

By: Edward Jones
DEWITT, Mich. - Nov. 3, 2021 - PRLog -- While history often points to October as a volatile month for equities, this year we saw the opposite in equity markets. After a 5.2% correction in September, markets were up nicely in October, with the S&P 500 returning an impressive 6.6% for the month and up over 1.0% last week1. This was driven by both growth and value sectors, even as the 10-year Treasury yield climbed higher to 1.57% levels and despite high-profile technology names like Amazon and Apple falling short in earnings1. And volatility seemed to fall this month as well: the VIX index (a measure of market volatility, often referred to as the "fear index") fell to around 17.0, in-line with readings prior to the pandemic, further supporting the positive tone in markets.

What drove this solid October performance? We think three key factors may be at play:

1. Reopening 2.0 – COVID-19 trends improving, not only in the U.S., but globally:
After battling the delta variant for much of the past few months, the US and many global economies finally seem to be at an inflection point, with better COVID-19 trends overall – at least for now. According to data by the CDC, cases and deaths in the U.S. have come down to numbers last seen in July of this year, prior to the delta variant surge. In addition, vaccination rates have improved, with 69% of the country over the age of 18 fully vaccinated (with the ongoing approval of boosters and vaccinations for children supporting these trends).

2. Third quarter earnings are exceeding expectations so far: Despite some high-profile companies, including Amazon, Apple and Starbucks, missing earnings forecasts – largely driven by supply chain bottlenecks and labor shortages – third quarter earnings have overall been a pleasant surprise to the upside. With about 55% of S&P 500 companies having reported so far, third quarter earnings growth is up a robust 36% year-on-year, well ahead of the expectation for 28% growth predicted at the end of September1. This upward revision in earnings has broadly supported the positive market tone.

3. President Biden's new social spending framework – is a corporate tax hike off the table? Last week, President Biden officially unveiled a ~$1.75 trillion social spending framework, which included spending on areas like universal pre-K, childcare support and an extension of the child tax credit, as well as over $500 billion on climate initiatives. While the proposal has not been endorsed by all factions of the Democratic party, policy makers are looking to get the bill passed in the weeks ahead, along with a vote on the $1.2 trillion infrastructure package in the House.

Sources: 1. Bloomberg

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