November Economic Update

Market Summary

After a difficult September, the markets reversed their losses and rallied higher, thanks in part to a strong start to earnings season. The encouraging wave of corporate earnings releases provided optimism that American businesses weathered the worst of the Delta variant surge. The Dow Jones Industrial Average advanced 5.84%, S&P 500 Index rose 6.91%, and the tech-heavy Nasdaq Composite gained 7.27%. (1)

Economic News

With about half of the S&P 500 constituent companies having reported earnings, more than 80% have met or exceeded Wall Street analysts’ consensus estimates. Many of those companies who did not meet earnings expectations cited supply chain and inflationary pressures which impacted their bottom line. (2)

Recent economic reports were mixed, including employment data which signaled a strong reversal in October after disappointments in both August and September. This may be signaling businesses are rehiring as the Delta variant wave subsides. Retail sales were another upside surprise, with 0.7%, despite constrained supply and the Delta variant. The better-than-estimated sales in September may reflect consumer strength and higher prices for goods. (3,4)

One disappointing economic metric released last month was GPD for the third quarter, which stated our domestic economic output had contracted to an annualized rate of 2%, which is less than half of the annualized rate of inflation of 5.4%. Durable goods orders also declined 0.4% which was lower than economists had forecasted amid labor and supply shortages. This is often a leading indicator for the stock market as it measures consumer purchases of items which last longer than three years such as home appliances, furniture, and automobiles – items that are not heavily weighted within retail sales data. (5,6)

What to Watch for This Month

In the month ahead, news events from Washington will likely take center stage and drive some market activity, the first of which will be the Biden Administration’s $1.2 trillion infrastructure bill which at the time of this writing, has passed the house and senate.

Another major legislative issue will be raising the federal debt ceiling - a decision that was postponed back in October when a deadline extension was agree upon for early December. The markets may become unsettled as we move closer to the debt ceiling deadline without a legislative agreement, as we witnessed in the month of September before the vote was delayed. A third item to be debated in D.C. will be the possibility of a change in corporate tax rates to help pay for the proposed social and climate spending bill.

Supply chains will also be closely monitored and scrutinized as we approach the holiday season which is the busiest time for U.S. ports which continue to be a bottleneck for importers. Corporate earnings have remained strong throughout the third while other economic indicators are potentially signaling slowing growth. With all of these factors for the month ahead, we will be closely monitoring how the markets react to these headlines.

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Monthly Financial Tip:

The first step to saving money is to figure out where you are spending it. Break down essential and inessential costs in your life.

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Citations:

1. WSJ.com, September 30, 2021

2. CNBC.com, September 28, 2021

3. WSJ.com, October 28, 2021

4. Bls.gov/news.release/empsit.nr0.htm

5. WSJ.com, October 13, 2021

6. WSJ.com, October 27, 2021

Disclaimers:

This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.