Welcome to November!
November is an opportunity to gather with friends and family and be thankful for our blessings - and to gobble down an extra helping of green bean casserole!
The stock market bounced back nicely in October after a really bumpy September, jumping 7.01% (S&P 500). What drove the rebound? Better-than-expected earnings for starters!
Companies like Microsoft, Goldman Sachs, Google, Chevron, and Chipotle posted stronger-than-expected earnings last quarter. Earnings represent how much money a company made in the quarter and are a major factor in the company’s stock price. When earnings ‘beat’ expectations, that’s like over-delivering on how much money it’s expected to make. And Wall Street likes that!
Many of the largest companies beat earnings last quarter, which helped push stock prices up in October. Unfortunately, Amazon wasn’t one of those companies. The supply-chain issues plaguing companies everywhere hit Amazon particularly hard. In a quarterly earnings call, new CEO Andrew Jassy noted that increased labor costs, shipping costs, and supply-chain issues all weighed on the company’s profitability.
The state of the global supply chain remains in focus for both Wall Street and Washington, DC. As lawmakers continue to debate the Biden Administration’s proposed spending package, supply-chain issues remain in key spots like the Port of Los Angeles. While the Administration did convince the Port to begin round-the-clock operations, trucking and freight remain under pressure, contributing to delays as we enter the critical holiday season.
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Stocks roared back in October, with all three major indices posting strong enough returns to eclipse last month’s modest pullback.
Energy stocks continue their stellar performance in 2021, up 10.36% for the month and 58.07% year-to-date, as of October 31! Financials and Real Estate continue their strong 2021 campaign, both outperforming the broad S&P 500 Index for the month.
The Materials, Utilities, and Consumer Staples sectors continue to lag the broader market despite a strong month from all three. Notably, the Materials sector did well last month as demand increased for commercial products like paint, chemicals, metal, and paper, pushing YTD performance into double-digits.
Bond performance remains muted in 2021 as the market awaits the Fed’s taper decision. Since March 2020, the Fed has aggressively purchased assets on the open market, leading to lower interest rates. Interest rates are expected to rise if the Fed decides to reduce its bond-buying.
Historically, rising interest rates lead to lower bond prices, which can mean a lower total return.
The state of the global supply chain remains in focus for both Wall Street and lawmakers in Washington, DC. What could be causing the slowdown?
Back in the 1980s, manufacturing companies adopted an approach called “just-in-time” inventory management. Just-in-time (“JIT”) calls for the necessary raw materials or parts to be delivered to the factory just before production must begin to fulfill orders on time. By reducing the amount of excess material on hand, companies can reduce waste, control costs, and better forecast revenue.
The Toyota Motor Company pioneered JIT in the 1970s. The company’s success led to the rapid spread of JIT principles to industries worldwide. It helped create the deeply interconnected global supply chain we have today.
Now, JIT works great if supply-chain disruptions are minimal. Because the company has to supply customers with what they want, when they want it, and spend as little money as possible to make it happen, any disruption to the supply chain can quickly lead to negative downstream effects. For example, in 1997, a catastrophic fire at one of Toyota’s auto-parts suppliers forced the company to stop production across the supply chain, costing the company billions in revenue.
The lockdowns used to control the coronavirus pandemic forced companies to shut their doors, some of them forever. As the pandemic eases, the surviving companies across the supply chain need to resume operations. That can mean tackling a list of logistical issues like rehiring workers, renegotiating contracts, and locating new supplier or purchaser relationships – alongside actually manufacturing and shipping an item.
As long as the world runs on time, JIT can leverage a highly interconnected supply chain to deliver what you want when you want it for a reasonable cost. The pandemic disrupted supply chains worldwide, forcing companies to play catch-up. As a result, some experts now expect supply-chain issues to persist through 2022.
With the holiday season upon us, it might be a good idea to consider purchasing gifts now!
Click to read a FAQ prepared by the Los Angeles Times.
Here’s what we’re watching in the month ahead:
Federal Reserve comments. The Federal Reserve is expected to begin tapering its asset purchases in November. We’ll be watching to see how the market reacts. If Chairman Jerome Powell has correctly messaged the move, the market may take it in stride.
Jobs Report. The unemployment rate continues to fall, which is good; however, quits continue to rise, puzzling many in what’s being called ‘The Great Resignation.’ A falling unemployment rate and a rising hire rate heading into the holiday season can be a bullish signal for Wall Street.
Progress on Biden Administration’s proposed spending plan. Lawmakers are deep in negotiations over every facet of the proposed bill. Despite some contentious rhetoric, Congress has a habit of passing legislation at the 11th hour. It remains likely that some version of the plan will pass before the year is done.
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Yuengling Beer Delivers Truckload of Lager to 106-Year-old Woman Who Drinks a Can Every Day
They call themselves the oldest brewery in America after David Yuengling arrived from Germany in 1829 and decided to make beer in the coal-mining town of Pottsville, Pennsylvania.
This month, they made a special delivery to a woman who might be the oldest beer-drinker in America.
The brewery drove up with a big truck to Margaret Dilullo’s home in Spring Township to deliver an early birthday gift of 20 cases of her favorite beverage.
Read more here.
Thought for the Month
Duane Allman (born Nov 20, 1946) was the legendary guitarist for the Allman Brothers Band. Known for his expressive slide guitar playing and improvisational skills, Duane Allman propelled the Allman Brothers Band into the forefront of what became known as ‘Southern Rock.’ He was killed in a motorcycle accident at age 24.
Dow Jones Industrial Average: The Dow Jones Industrial Average® (The Dow®), is a price-weighted measure of 30 U.S. blue-chip companies. The index covers all industries except transportation and utilities.
Dow Jones U.S. Real Estate Total Return Index: The index is designed to track the performance of real estate investment trusts (REIT) and other companies that invest directly or indirectly in real estate through development, management, or ownership, including property agencies.
NASDAQ Composite: The NASDAQ Composite is a market-cap weighted index of all issues listed on the Nasdaq stock exchange. It is heavily weighted towards the technology sector.
S&P 500 Bond Index: The S&P 500® Bond Index is designed to be a corporate-bond counterpart to the S&P 500, which is widely regarded as the best single gauge of large-cap U.S. equities. Market value-weighted, the index seeks to measure the performance of U.S. corporate debt issued by constituents in the iconic S&P 500.
S&P 500 Consumer Discretionary: The S&P 500® Consumer Discretionary comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer discretionary sector.
S&P 500 Consumer Staples: The S&P 500® Consumer Staples comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer staples sector.
S&P 500 Energy: The S&P 500® Energy comprises those companies included in the S&P 500 that are classified as members of the GICS® energy sector.
S&P 500 Financials: The S&P 500® Financials comprises those companies included in the S&P 500 that are classified as members of the GICS® financials sector.
S&P 500 Index: The S&P 500® index is a market-cap weighted index of the largest 500 companies headquartered in the United States. The index covers approximately 80% of available market capitalization.
S&P 500 Utilities: The S&P 500® Utilities comprises those companies included in the S&P 500 that are classified as members of the GICS® utilities sector.
S&P U.S. Aggregate Bond Index: The S&P U.S. Aggregate Bond Index is designed to measure the performance of publicly issued U.S. dollar denominated investment-grade debt. The index is part of the S&P AggregateTM Bond Index family and includes U.S. treasuries, quasi-governments, corporates, taxable municipal bonds, foreign agency, supranational, federal agency, and non-U.S. debentures, covered bonds, and residential mortgage pass-throughs.
S&P U.S. Treasury Bond Index: The S&P U.S. Treasury Bond Index is a broad, comprehensive, market-value weighted index that seeks to measure the performance of the U.S. Treasury Bond market.
Consumer Prices - CPI: Consumer prices (CPI) are a measure of prices paid by consumers for a market basket of consumer goods and services. The yearly (or monthly) growth rates represent the inflation rate.
PCE (headline and core): PCE deflators (or personal consumption expenditure deflators) track overall price changes for goods and services purchased by consumers. Deflators are calculated by dividing the appropriate nominal series by the corresponding real series and multiplying by 100.
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