Market and Investment Insights

October 2021

Back to Black

After pulling back in September as markets coped with concerns over higher inflation, the S&P 500 hit a new all‐time high in October. Canada’s major exchange, the S&P/TSX, had its longest winning streak in history, notching 14 consecutive days of positive returns. Rising energy and materials prices, two sectors that are overly represented in the index given our commodity‐based economy, helped push the index to new all‐time highs. Higher oil and natural gas prices fed into elevated headline inflation rates, which will likely cool in 2022 but will settle at a higher rate than we had pre‐pandemic.

After rumours of a possible deal, PayPal executives determined an acquisition of Pinterest would not be in the company’s best interest. Executives noted the rapid share price decline after news broke, which they took as an indicator that shareholders were not in favour of the deal.

Shares of steel producer Nucor climbed after reporting better than expected earnings. High steel demand has allowed the company to maintain a strong balance sheet while acquiring two new businesses and executing on their share repurchase program. The current backlog of orders are forecasted to continue into Q4, while profitability is expected to improve.

Microsoft is now the world’s most valuable company, eclipsing Apple as shares surged on back‐to‐work demand for their software. Unlike Apple, Microsoft has not been constrained by supply chain disruptions, which have hampered iPhone production targets going into the holiday season.

We continue to favour pro‐cyclical financial assets, which translates to an overweight allocation to global stocks versus bonds. Returns for equities are likely to be skewed towards Developed markets rather than Emerging, as China’s economic slowdown dims the outlook for Emerging market risk assets. The distress in China’s real estate market may cause policymakers to react aggressively to stimulate the economy, although this will have a lagging effect on performance.

It’s likely that November will see new highs, barring some calamitous unforeseen event. According to Nasdaq Market Intelligence, over the last 10 years, November has had the best monthly market returns for U.S. equities.

 

Portfolio Contributors

  • iShares Global Clean Energy ETF (ICLN) gained 13.94% as the progression of the U.S. infrastructure package gave a boost to EV‐related and renewable energy equities
  • Shares of Nucor (NUE) surged 10.66% after a positive earnings report and fourth quarter guidance from management

Portfolio Detractors

  • Steadfast Income Pool (MAJ383) was down 1.28% as inflation concerns continued to put pressure on fixed income securities

All returns are for the reported month and in local‐currency.
All data sourced from SIACharts and FACTSET.

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Proxy funds used for benchmark indexes:

  • Canadian Universe Bond Index: iShares Canadian Universe Bond Index EFT (XBB.TO)
  • MSCI World Index (CAD): iShares MSCI World Index EFT (XWD.TO)