Commentary provided by Mark Szycher, Vice President, Investment Specialist, AIG Retirement Services
Market Performance Snapshot* (Week ending November 5, 2021/Year-to-Date)
- Dow Jones Industrial Average®: +1.4% | +18.7%
- S&P 500® Index: +2.0% | +25.1%
- NASDAQ Composite® Index: +3.1% | +23.9%
- Russell 2000® Index: +6.1% | +23.4%
- 10-year U.S. Treasury note yield: 1.45%
- Down 11 basis points from 1.56% on October 29, 2021
- Up 53 basis points from 0.92% on December 31, 2020
- Best-performing S&P 500 sector this week: Consumer Discretionary, +5.0%
- Weakest-performing S&P 500 sector this week: Health Care, -0.7%
*Past performance is not a guarantee of future results.
Stock rally continues as Fed announces taper
Equities carried October’s rally into November with all major indices reaching record closing highs and the Dow Jones Industrial Average topping 36,000 for the first time. Markets reacted positively to the long-awaited Federal Reserve decision to begin tapering asset purchases and to a better-than-expected jobs report. Concerns about longer-term growth prospects and gyrations in global government debt markets pushed the 10-year Treasury yield down to 1.45% after topping 1.6% earlier in the week.
- The Fed announced it will immediately begin tapering its $120 billion in monthly asset purchases, with Treasury purchases declining by $10 billion a month and mortgage bond purchases declining by $5 billion a month. Tapering should conclude by June 2022, however the Fed could adjust the pace should economic conditions warrant.
- The Federal Open Market Committee maintained its 0-0.25% target for the Federal Funds rate and once again said higher inflation is expected to be transitory while acknowledging “sizable price increases in some sectors.”
- In his post-meeting press conference, Fed Chair Jerome Powell noted “bottlenecks and supply chain disruptions” are contributing to inflation “running well above our 2 percent longer-run goal.” He said, “Global supply chains are complex; they will return to normal function, but the timing of that is highly uncertain.”
- Powell also presented an optimistic view of Q4 GDP growth following the third quarter slump: “With COVID case counts receding further and progress on vaccinations, economic growth should pick up this quarter, resulting in strong growth for the year as a whole.”
- The Bank of England unexpectedly maintained its headline interest rate at 0.1%, but said it may start raising rates “in coming months” to curb inflation. The surprising decision created turbulence in global debt markets.
- Major oil producers maintained their plan to increase daily output by 400,000 barrels each month through 2022, resisting pressure from the U.S. and other countries to quicken the pace amid rising oil and gasoline prices. U.S. benchmark oil is up more than 67% this year, while the international benchmark is up nearly 60%. Increasing oil demand has driven prices higher, as has oil’s use as an inflation hedge.
Labor market recovery continues, but uncertainty remains
Jay Powell noted in his press conference that labor market participation remains “subdued” and “employers are having difficulties filling job openings.” New data revealed continued healing in the labor market, with ongoing challenges.
- On Friday, the Department of Labor reported 531,000 jobs gained in October, above the consensus forecast of 450,000. Employment gains in August and September were also revised higher by a combined 235,000 jobs. The unemployment rate declined to 4.6% from September’s 4.8%. Total employment is still 4.2 million jobs below the pre-pandemic level.
- Average hourly earnings increased 4.9 percent over the past 12 months. The labor force participation rate remained unchanged from September, though 250,000 women aged 20 and over re-entered the labor force, possibly reflecting reduced caregiving responsibilities as schools reopened and virus cases declined.
- New unemployment claims were 269,000, the fourth consecutive week the figure has been below 300,000.
- OSHA announced an Emergency Temporary Standard (ETS) effective January 4, 2022, for employers with 100 or more employees to require employees to be vaccinated or take weekly COVID tests. Employers will not be required to pay for tests unless stipulated in a collective bargaining agreement. Unvaccinated employees will be required to wear masks at work. On Friday, several states announced a legal challenge to the ETS. If it takes effect as planned, the rate of employees quitting jobs or the level of unfilled jobs in early 2022 might be impacted.
- Children as young as 5 began receiving Pfizer’s vaccine after the FDA and CDC approved the shots for tots. Uptake rates could affect labor market participation if working parents feel more confident that schools will face fewer health-related disruptions.
- In its quarterly earnings report, Pfizer raised its sales and income projections for 2021 as sales of multiple pharmaceutical products jumped. Vaccine sales accounted for more than half of the company’s third-quarter revenue and are now expected to total $36 billion this year. Pfizer also reported positive data from trials of an experimental pill to treat COVID.
- Moderna fell short of vaccine sales expectations as production and distribution challenges delayed deliveries. The company, which is largely dependent on the COVID vaccine for revenue and profit, lowered its full-year sales forecast, pushing the stock down more than 30%.
- The UK became the first country to approve Merck’s oral antiviral pill molnupiravir, calling it “safe and effective at reducing the risk of hospitalization [sic] and death in people with mild to moderate COVID-19 who are at increased risk of developing severe disease.”
Final thoughts for investors
Major central banks are beginning to scale back pandemic-related monetary support and some consumer interest rates are already starting to rise. Significant policy shifts often generate volatility. Prepare for uncertainty by speaking with a financial professional.