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Commentary provided by Mark Szycher, Vice President, Investment Specialist, AIG Retirement Services

Market Performance Snapshot* (Week ending October 22, 2021/Year-to-Date)

  • Dow Jones Industrial Average®:  +1.1% | +16.6%
  • S&P 500® Index:  +1.6% | +21.0%
  • NASDAQ Composite® Index:  +1.3% | +17.1%
  • Russell 2000® Index:  +1.1% | +16.0%
  • 10-year U.S. Treasury note yield:  1.64%
    - Up 7 basis points from 1.57% on October 15, 2021
    - Up 72 basis points from 0.92% on December 31, 2020
  • Best-performing S&P 500 sector this week:  Real Estate, +3.2%
  • Weakest-performing S&P 500 sector this week:  Communication Services, -0.6%

    *Past performance is not a guarantee of future results.

Solid corporate earnings push equities higher

Equities climbed throughout the week, with the Dow Jones Industrial Average closing at a record high and the S&P 500 reaching a record Thursday before retreating a bit Friday. Inflation and growth concerns continued to take a back seat to strong corporate earnings across sectors. The 10-year Treasury yield rose as high as 1.70% before closing the week at 1.64%.

  • New unemployment claims were below 300,000 for the second week in a row amid a tight labor market and the end of enhanced unemployment benefits. The number of continuing claims also fell to a pandemic-era low as the total number of people receiving benefits under all state and federal unemployment assistance programs fell to 3.3 million, down from 23.8 million during the same week last year. The Fed is closely monitoring the labor market as it nears a decision on tapering asset purchases.
  • U.S. industrial production – which includes factory, mining, and utilities activity – fell 1.3% in September, worse than the 0.2% gain economists had been expecting. August’s production was also revised down, with Hurricane Ida and chip shortages in the auto sector having played significant roles in the decline. Industrial capacity utilization fell to 75.2% versus a consensus estimate of 76.5% and August’s 76.2%, indicating that labor and supply chain problems are restraining producers’ ability to operate at full strength. On the positive side, industrial production rose 4.3% for the whole third quarter, the fifth straight quarter with increases of at least 4%.
  • Existing home sales rose 7% in September from August, above the 3.7% expected, according to the National Association of Realtors. The housing market remains hot, but price pressures appear to be creeping in. The share of first-time buyers was the lowest since 2015, and annual price growth was lower in September than in August. Separately, the Commerce Department reported that housing starts fell 1.6% in September from August and residential permits – reflecting future homebuilding – fell 7.7%.
  • China’s economy grew by a mere 4.9% (on an annualized basis) in the third quarter, down from 7.9% in the second quarter. Economists had been expecting 5.1%. China continues to face energy and supply chain challenges, as well as concerns about real estate sector debt. Government crackdowns on various industries have also given investors pause.

Earnings continue to impress, but the future holds challenges

Corporate earnings continued to largely exceed expectations as companies relied on strong consumer demand to blunt the impacts of inflation and supply chain difficulties, but many companies are also flashing warnings.

  • Consumer products maker P&G reported quarterly sales that topped estimates and projected reaching its full-year goals for sales and profit. The company plans to raise prices on various everyday necessities to offset expected cost increases through year-end. Unilever is also raising prices to counteract higher input costs and slowing sales volume, which was hurt by continuing COVID challenges in Asia.
  • Johnson & Johnson reported higher-than-expected earnings but fell short of sales expectations due to lower-than-expected vaccine sales and medical device sales that slumped during the summer COVID surge. Sales still grew 11% over the same quarter last year and the company raised its profit projection for 2021.
  • Major airlines including American, Southwest, and United reported higher sales and narrower losses than expected, though all anticipate rising fuel costs in the fourth quarter. Southwest also stated that ongoing staffing challenges will lead to fewer flights.
  • Netflix topped earnings and subscriber-growth forecasts and met revenue expectations for the quarter.
  • Tesla beat revenue and earnings expectations, as it navigated supply chain struggles to deliver 73% more vehicles than in the same quarter the previous year. Still, the company’s CFO noted, “Due to parts shortages and logistics variability, we have not been able to run our factories at full capacity.”
  • Shares of Snap Inc., owner of Snapchat, plunged 25% after the company said Apple’s new privacy rules have made it harder to measure advertising effectiveness. Snap also noted clients’ declining appetite for ad spending as supply chain and labor woes make it harder to meet consumer demand. Concerns about Apple’s effect on ad tracking weighed on other social media companies Friday.

Final thoughts for investors

Strong corporate earnings are powering markets, but labor and supply chain issues remain a nagging concern and companies are signaling that consumers will face higher prices in coming months. Expect volatility and speak with  a financial professional about your long-term goals.

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