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Monthly Market Snapshot: October 2021

A monthly update on equity, fixed income, currency, and commodity markets.

Views expressed are those of the authors and are subject to change. Other teams may hold different views and make different investment decisions. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional or institutional investors only.

Equities

Global equities (+5.0%) rebounded, ending October with a 19.0% gain year to date. Risk sentiment was bolstered by strong corporate earnings, robust global equity inflows, and improving COVID-19 trends and vaccine coverage. However, persistent supply-chain disruptions and uncertainty about the inflation outlook triggered anxiety about the global economic recovery. Inflation swelled across most developed markets, ratcheting up pressure on central banks to start scaling back some of their extraordinary monetary support and prompting markets to pull forward the time frame of interest-rate hikes by the US Federal Reserve (Fed) and the European Central Bank (ECB). A combination of strong demand and depleted supplies drove oil, gas, and coal prices sharply higher, sending shock waves through economies across the globe. In Europe, gas prices jumped by 60% in a week, before steadying after Russian President Vladimir Putin directed the country’s major gas producer to fortify European supplies. China’s central bank governor indicated that the Chinese government could contain the risks that Evergrande’s debt woes pose to the country’s economy, as liabilities were spread across hundreds of entities in the financial system.

US

US equities (+7.0%) registered their largest monthly gain of the year, as inflation anxiety was outweighed by better COVID-19 trends, higher-than-expected corporate earnings, strong US equity inflows, and improved prospects for additional fiscal stimulus. Markets were bolstered by a rapid decline in the number of US COVID-19 cases, which fell nearly 60% from their latest peak in September. Consumer prices and wages increased at their fastest pace in decades against a backdrop of severe supply and labor shortages, rising energy prices, and robust demand for goods and services. That spurred investors to anticipate that the Fed will begin tightening monetary policy by the summer of 2022. After months of tense negotiations, President Joe Biden unveiled a framework for a US$1.5 trillion social spending and climate bill largely financed by taxes on corporations and wealthy individuals. A vote to approve the measure, in tandem with a US$1 trillion infrastructure bill, was delayed as Democrats raced to solidify the support of progressive and moderate members of the party. With 56% of companies in the S&P 500 Index having reported third-quarter earnings results, 82% of those companies reported earnings that exceeded forecasts by 10.3% in aggregate. The blended year-over-year earnings growth rate for the index in the third quarter was 36.6%, and the forward 12-month price-to-earnings ratio stood at 21.1.

Economic data released in October was mixed. Job growth in September was the slowest in 2021, as nonfarm payrolls grew by 194,000, well below forecasts of 500,000. Despite record-high demand for workers and strong wage growth, this result marked the second consecutive month that employment gains were significantly below expectations. However, school reopenings, improving COVID-19 trends, and the expiration of expanded federal unemployment benefits are anticipated to boost hiring in the coming months. The unemployment rate dipped to…

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