For the first time ever, the S&P 500 briefly eclipsed 4,600 on Friday, before closing slightly lower on the day and just below Thursday’s all-time market closing highs. Stocks have now responded to last month’s 5% pullback, the first of 2021, with four consecutive weeks of gains as investors piled $24.5B+ of cash into global equity funds in the week ending October 27, the most since mid-March (per Lipper). Despite Thursday’s Gross Domestic Product (GDP) report for the third quarter (Q3) indicating that the US economy grew at the slowest pace since the pandemic (2% annual rate vs. 2.7% consensus expectations), the bullish thesis for stocks has remained intact and recently augmented by optimism around seasonality and buybacks. Q3 earnings have also come in better than expected and with 55% of companies in the S&P 500 having reported, the index is on pace for 36.5% year-over-year earnings growth (per FactSet). However, supply chain issues persist and even mega cap companies like Apple, which reported Thursday, have not been immune, as mentions of “supply chain” on earnings calls have risen over 320% from a year prior (per BofA). Next week, all eyes will be on the Federal Reserve’s meeting announcements on November 3rd, as investors prepare for a likely taper announcement and look for more visibility into future monetary policy, particularly a potential timeline for rate hikes.
A Prepared U.S. Postal Service?
With many consumers starting their holiday shopping early and the National Retail Federation (NRF) forecasting a record $843B-$859B in sales during November and December, one could probably assume that the U.S. Postal Service will once again be overwhelmed. Last year, for example, one of the more glaring bottlenecks was the delivery of holiday gifts as one out of five USPS packages failed to reach its destination on time from October through December, according to Postal Service data. However, USPS is massively increasing capacity, adding 45 new facilities, hundreds of new sorting machines, and on track to hire 40,000 seasonal workers to handle over 50 million packages a day, up 35% from last year. All of these capital improvements are part of a larger 10-year plan to spend $40 billion on improved capacity and efficiencies and it will be very interesting to see if during a holiday season hallmarked by shortages and bottlenecks, the USPS can buck the trend.
Ian Browning, CFA | Director, Investment Strategies & Shareholder
Peter E. Simmons, JD | President & CEO