Monthly Market Update:
Recap of October 2021
Passing out candy has come and gone as fast as the September stock market setback. In October, stocks rebounded back to all time highs. Optimism is shining through as the market continues to see growth, even with supply concerns, pending tax legislation and higher than normal inflation.
During the month of October, the S&P 500 posted a 7.01% return and appointed a new leader for the 500 companies, with Microsoft taking the trophy. Microsoft is now projected to be worth about $2.49 trillion, while Apple is only at $2.48 trillion.
As the markets continue to show strength, there are still underlying issues, such as supply and inflation. With the supply chain problems, there has been a downward trend in GDP estimates, which monitors the market value of finished goods and services produced in the US. It only makes sense for the GDP estimates to be lower because companies are waiting on necessary items to complete their goods. An example of this is in the automotive industry where there are plenty of vehicles that have been made, but very little finished, due to the chip shortage.
With inflation, the Fed is getting ready to take action. Prices have creeped up and we know that nobody wants to see inflation get out of control because then the value of a dollar will be much less than it is today. At this moment, the Fed is planning to start tapering bond purchases, which means less money will be inserted into the economy. Though the Fed felt their purchases on bonds, known as quantitative easing, was necessary last year, they know that putting more money in the economy is driving up costs and they must stop this to prevent hyperinflation. From there, the Fed will start to raise the Fed fund rate though we do not have their timeline on this as of yet.
Since there is a lot behind the scenes going on even with the stock market currently looking like a bed of roses, let me give you some insight into possibilities of what could happen and what we are doing with portfolios. First, when the Fed stops buying bonds and increases rates, the stock market could get a bit bumpy, but also bonds that are currently out there often become less attractable because there are new bonds that pay more. To battle the potential market swings and the fact that current bonds may not pay well, all portfolios that are not what we consider ultra-growth, have a new fund that will take part in a market gain, though it will work more like a bond. This will help limit the risk of losing money on bond and also help to smooth out what could be a bumpy ride for the stocks.
In the end, I always say to keep a long-term view. Younger people say ok and are on their way, but for our retired and soon to be retired clients, I always hear that you don’t have a long term. So just to be clear, long term should be considered not worrying about day-to-day markets. Instead, rely on your financial plan and know that you are invested based on your goals and comfort level.
Another possibility that will arise in the future when we see market fluctuations is for insurance sales people to start to prey on emotions. They hide when the market is good and then when it is bad, they pounce at the opportunity. The truth is, when the word guarantee is said, I can guarantee that you are making an insurance company a lot of money because they are giving you minimal money and investing your money how it should be so they can get the returns. If you have questions or concerns with your financial plan or portfolio, let’s discuss those and make sure it is aligned with your needs.
For the numbers, the month of October, the S&P 500 finished +7.01%, Dow +5.93%, Nasdaq +7.29% and Barclays US Aggregate Bond Index -.03%.