Stocks posted impressive weekly gains, as a relatively dovish Federal Reserve policy meeting, healthy economic data, and a strong tail end to the earnings season all boosted sentiment toward equities. The Dow Jones Industrial Average, the S&P 500 Index, and the Nasdaq Composite all reached record highs. Technology stocks and small-caps were particularly strong, and growth shares outperformed value stocks. Oil prices dropped from their recent highs, after Biden administration officials mentioned the possibility of releasing supply from the strategic petroleum reserve.
The quarterly earnings season wound down with ongoing strong results, as profit margins held up well despite higher commodity prices and supply chain disruptions in various industries. However, equity investors seemed to punish the companies with earnings that lagged consensus expectations more than they rewarded those that beat expectations.
At Wednesday’s conclusion of the Federal Reserve’s policy meeting, the central bank stated that it will begin to slow its monthly bond purchases by $15 billion later this month and in December. By not specifying the speed of the taper beyond December, the widely expected tapering announcement gives the Fed the flexibility to make adjustments, as economic conditions evolve.
The policy statement released after the meeting and Fed Chairman Jerome Powell’s post-meeting press conference stressed that policymakers still expect the recent high inflation readings to moderate and will need to see further labor market improvement before raising rates, helping to alleviate fears about an abrupt monetary policy tightening. This seemed to put a dovish spin on the tapering announcement for stock investors, who drove equities higher following the Fed meeting.
Economic data released during the week were generally robust, showing that the economy gained strength as the late-summer wave of the delta variant eased. Factory orders increased 0.2% in September, slightly more than consensus expectations. The government’s October employment report, released on Friday morning, showed 531,000 jobs added, topping consensus estimates. The unemployment rate fell to 4.6%. The Labor Department also said that the economy gained 235,000 more jobs in August and September than it originally estimated.
With the infrastructure package and associated tax changes looming, we anticipate some significant market movement in the near term. As always, the direction of these changes is unknown. Even the best stewards often fail to plan, because they don’t know what the future holds. It’s in moments like this that we are here to help. We continue to plan and invest for the future, understanding there are many uncertainties. These plans and investments for our clients bear in mind that the heart of man plans his way, but the Lord establishes his steps (Proverbs 16:9).
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