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Weekly Market Update 10/15/2021

By October 20, 2021 No Comments

Despite this week’s consumer price index (CPI) showing the highest rate of inflation (5.4%) since 2008, investors were undeterred, and stocks finished the week with 3-straight sessions of gains. After struggling in September, technology stocks were notable outperformers, as the sector has become rather interest rate sensitive and strengthened as the recent surge in the 10-year US Treasury yield paused. Energy stocks continue to trade well and WTI crude posted its eighth straight week of gains to achieve its highest levels in 7 years, as new production has stalled, and acute shortages of natural gas and coal overseas have increased demand for oil. The third quarter earnings season has only seen about 8% of S&P 500 companies report thus far, but early indications, primarily from the banks, have been encouraging, and earnings growth is now on pace to rise almost 30% year-over-year. Ultimately, it appears as though fears of “stagflation” are being shrugged off and the S&P 500 is now within a 3-month trading range as investors gauge earnings growth, fiscal policy, and how the Fed will navigate the highest inflation data in decades.

COLA Surge

Public awareness of labor shortages, supply chain disruptions, and inflation are probably around historic levels (see chart of Google search trends below), but this week’s cost-of-living adjustment (COLA) for Social Security benefits was a notable example of how these issues are trickling down to consumers.  Based off the Labor Department’s measure of inflation faced by blue-collar workers, the Social Security Administration announced that next year’s cost-of-living adjustment will be 5.9%, the largest increase in benefits since 1982.  Rising prices are particularly hard on those with fixed incomes, so ideally this adjustment will bring some much-needed relief to retirees and other recipients.  However, despite Friday’s report for September retail sales showing significantly stronger consumer activity than expected, inflation is undoubtedly weighing on Americans as October’s preliminary consumer sentiment index is near 10-year lows.  Beyond the implications on markets, we are very hopeful that supply chain issues clear as we head into 2022 and help to make this 40-year record COLA adjustment all the more meaningful for recipients.

Regards,

Ian Browning, CFA | Director, Investment Strategies & Shareholder
Peter E. Simmons, JD | President & CEO

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