The Independent Market Observer

Looking Back at the Markets in October and Ahead to November 2021

Posted by Brad McMillan, CFA, CAIA, MAI

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This entry was posted on Nov 9, 2021 12:32:27 PM

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In October, the markets bounced back strongly from September’s weakness. Commonwealth CIO Brad McMillan weighs the prospects for November.In October, the markets bounced back strongly, following a difficult September. Here in the U.S., all three major indices were up significantly. The Nasdaq and the S&P 500 gained more than 7 percent, and the Dow went up almost 6 percent. Developed markets showed a smaller gain, almost 2.5 percent, and emerging markets eked out a small rise of 1 percent. Although stocks did well, bonds had another bad month, dropping slightly as interest rates rose.

Looking Back

Economic data bounces back. What drove these results? After the weakness seen in September, some key economic data improved. Job growth bounced back sharply, as shown in the October employment report, and layoffs continued to drop. Consumer confidence showed signs of stabilizing, and business confidence and investment remained high. So, while the economic damage from the Delta variant is real, it seems to be passing as the medical news improves.

Medical news improves. The medical news was indeed better throughout October. Case growth continued to decline, extending the significant September improvement. By the end of October, cases were down more than 40 percent. Testing rates and hospitalizations showed similar improvements, as did death rates. While the pandemic is still very much with us, things are getting better.

Overall data positive. Both people and the economy are responding. The October jobs report showed a sharp increase in hiring, to a very healthy gain of 531,000 jobs. It also recorded a substantial upward revision of the weak September numbers, which rose from 194,000 to 312,000 additional jobs. In October, not only was hiring up across the board, but layoffs ticked back down, ending the month at their lowest level since the start of the pandemic. Perhaps driven by the better jobs data, consumer confidence rose unexpectedly, supporting another increase in retail sales.

Overall, the October data suggests that the September decline was a one-off trend—and that the fourth quarter will be stronger than the third.

Risks bear watching. Although October started the fourth quarter strongly, there are still risks to keep in mind. The improvement in the medical news, for example, appears to have paused in the first week of November. If the medical improvement stays slow, the economic improvement could slow as well. Moreover, if the pandemic sees a winter wave, economic activity could slow once again. That is not happening yet, but it remains a real possibility. Even absent a winter wave, current infection growth and hospitalizations remain at economically damaging levels.

So, if October’s lesson is that improving medical news can generate an economic rebound, we must remember that September showed us how bad medical news can damage the economy and markets.

Looking Ahead

Economic improvement likely. Looking ahead to the rest of the year, however, the prospects are good despite the risks. The pandemic remains at a level the economy seems able to tolerate, and the recovery continues. Job growth is up and layoffs are down. Overall, we are returning to something like normal, and the consumer economy has real momentum. Business confidence and investment remain strong, despite the real labor shortage and supply problems. Many of the most significant risk factors, such as the expiration of federal stimulus programs, are starting to recede. As we move further into the fourth quarter, we will likely see more economic improvement.

Markets setting new highs. That improvement is what the markets are expecting. After September’s pullback, the markets have returned to new highs, suggesting that doubts about the recovery’s durability and fear of the pandemic are decreasing. The fundamentals also support the idea that the fourth quarter will be better. Earnings have continued to come in strong. With margins up and sales holding, corporate earnings are expected to rise by almost 40 percent in the third quarter. We should see additional strong gains in the fourth quarter. Companies continue to sell more—and to keep more of the sales as profits. From a business perspective, confidence remains high, and the results justify this.

Positive Trends Very Real

Although November and the rest of the fourth quarter will face challenges, the outlook remains positive. The actual outcome is uncertain, and the risks we saw in September are real. Still, there are signs those risks may be fading—and that the very real positive trends from earlier in the year will reassert themselves. September was the month when the markets started to take risk seriously. But, in October, those risks may have started to subside. In November, we will likely see the improving trends continue.


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