Please find our most recent market review below. Following the commentary, you will find a table of returns for widely available ETFs that represent the major markets. Below that are five simple portfolio mixes, composed of low-cost Vanguard ETFs. These can be used as a guide against which to compare your portfolio mix. We hope this information is of value to you.
– The AdvicePeriod Team
Monthly Market Review
By Nathan Sonnenberg
AdvicePeriod Chief Investment Officer
Persistent inflation. Supply chain disruptions. The lingering pandemic. Stock markets throughout the world shrugged off all these issues and more in October to post solid gains.
U.S. stocks (VTI) led the way, rising 6.69% for the month. Developed international stocks (VEA) gained 3.23%, and emerging-market stocks (VWO) rose 1.30%. Meanwhile, the U.S. bond market (BND) increased by 0.02%, and municipal bonds (MUB) fell 0.11%.
Strong earnings helped domestic stocks outpace their global counterparts. Of the 89% of S&P 500 companies that had released third-quarter results by November 5, 81% reported better-than-expected earnings per share, and 75% reported positive revenue surprises. Many market pundits had expressed concerns over supply-chain problems, wage pressures, and other issues. But in the end, most companies have managed to successfully pass price increases through to their customers.
The economic headwinds remain substantial, however, as we head into the fourth quarter. They include:
- Slowing global growth
- Persistence of the COVID Delta variant
- Continued and sustained levels of inflation
- Supply-chain bottlenecks
- A political standoff over the U.S. debt ceiling
- Uncertainty regarding infrastructure and tax legislation
- Chinese regulatory crackdown
October did see the long-awaited drop in the S&P 500—but the decline, from September 2 to October 4, was barely 5%. Since the end of that pullback, the S&P has moved steadily higher and continues to notch new record highs.
Turning to the state of the economy, U.S. economic growth lagged in the third quarter. Gross domestic product rose at an annualized rate of just 2%, following a 6.7% rate in the second quarter. Slowing consumer spending, amid a resurgence in COVID cases, was part of the problem. The economy may be poised to pick up steam, though: As of November 10, the Atlanta Fed’s estimate for annualized fourth-quarter GDP stood at 8.2%.
What’s more, there’s encouraging news on the employment front. In October, the U.S. created 531,000 jobs, the most in three months, even as employers increased average wages. The unemployment rate fell to 4.6% from 4.8% in September. In addition, the Department of Labor revised employment statistics for August and September to show that 235,000 more jobs were created than initially thought.
Meanwhile, inflation continues to run significantly above the acceptable ranges set forth by Federal Reserve chairman Jerome Powell. The Consumer Price Index is up 5.4% from this time a year ago, and the Producer Price Index, gauging the costs that manufacturers pay for materials and components of their products, is up 8.6% year-over-year.
Interest rates rose slightly in October, with the yield on the 10-year Treasury bond moving to 1.56% from 1.53%. The rise in interest rates caused bond prices to drop, as existing bonds became a tad less valuable.
Since the Coronavirus crash in March of 2020, when the S&P 500 fell 12.5%, the market has gained ground in 15 of 19 months. And the worst monthly decline was less than 5%. As of October 31, the S&P 500 notched its 59th closing all-time high for 2021. It’s certainly been a remarkable run.
Major Market Index Returns Period Ending 11/1/2021 (Annualized)
Selections include widely available ETFs. Multi-year returns are annualized and net of management fees, but do not include trading and advisory fees. Return source: Morningstar. AP Disclosure
Sample Portfolio Mix Returns (Annualized)
Global portfolio mixes comprise stocks and bonds, as represented by VT (Vanguard Total World Stock Index Fund ETF) and BND (Vanguard Total Bond Market Index Fund ETF). Multi-year returns are annualized. Performance is net of all management fees but does not include trading and advisory fees. Return source: Morningstar. AP Disclosure
What You Pay For: The Percentage of Active Managers That Underperform Their Benchmarks
Trailing 10 Years Numbers As of December 31st, 2020 – S&P Spiva Scorecard
Percentage of US large-cap funds that underperformed their benchmarks
US large-cap benchmark:
Percentage of international funds that underperformed their benchmarks
S&P International 700
Percentage of emerging market funds that underperformed their benchmarks
Emerging Markets benchmark:
The S&P Dow Jones SPIVA Scorecard compares actively managed funds against their respective benchmarks semiannually.