October 2021 Market Perspective

Bill Hastie |

The U.S. equity markets enjoyed a great start to the 3rd quarter on 2021 in July and August but became susceptible to the historical market volatility in late September and early October. It was a myriad of concerns (discussed below) that generated a sharp reaction in global investor sentiment. The Dow Jones Industrial Average dropped 4.2% for the month of September and 1.46% for the 3rd quarter. The S&P 500 declined a bit more, losing 4.65% for the month but was able to eke out a gain of 0.58% for the quarter.  The tech-heavy NASDAQ lost 5.27% for the month and 0.23% for the quarter, primarily as a result of rising interest rates.

The foreign markets also fell victim to the market reaction with the developed markets declining for both the months and quarter by 2.9% and 0.45%, respectively. The foreign emerging markets took the brunt of the global declines, losing 3.94% for September and 7.97% for the 3rd quarter.

September brought with it a “perfect storm” of market, economic and medical concerns that in combination weighted heavily on equity values worldwide. The Delta variant brought COVID back to the forefront, creating a slump in hiring as business feared the return of the lockdowns we saw last year. This happened at the same time the Federal Reserve indicated that it may begin to slow the amount of money it was injecting into the economy, which lead to a rise in interest rates.

Looking to the 4th quarter, we are positive on the outlook although challenges remain. Senate Democrats and Republicans came together at the end of the first week of October and agreed to a temporary increase in the debt ceiling averting a government shutdown and potential downgrade in U.S. debt. This agreement will fund the government until December when they must vote on a more permanent ceiling increase. The economic damage from the Delta variant has begun to improve with new case growth and the positive test rates declining by about one-third on a seven-day-basis by the end of September. Lastly, corporate earnings are expected to remain strong. With profit margins and sales holding up, analysts forecast that corporate earnings will increase by 30% or more in the 3rd and 4th quarters of 2021.

We continue to receive constant input from our research team at Commonwealth as well as maintain regular contact with our industry research partners to stay abreast of the many factors effecting the global investment markets. Should you have any questions and wish to discuss our market outlook and investment strategy in greater depth, please don’t hesitate to contact our office.


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