Investment Commentary – November 16, 2021
Year to Date Market Indices as of November 16, 2021
• Dow 36,199 (18.00%)
• S&P 4,707 (22.89%)
• NASDAQ 15,986 (21.23%)
• Barclay Bond Aggregate (-3.58%)
• Fed Funds Rate 0-0.25 (0-0.25)
• Annual Inflation Rate 5.4% (As of 10/13/21)
Stocks rise on signs of consumer strength despite rising prices, Home Depot leads Dow higher
U.S. stocks gained on Tuesday after a strong October retail sales report and better-than-expected third-quarter results from Home Depot and Walmart signaled the U.S. consumer is still ramping up spending even in the face of rising prices.
The Dow Jones Industrial average added 143 points, or 0.4%. The S&P 500 gained 0.5% and the Nasdaq Composite rose 0.7% as well. The major averages have been stuck in a rut in recent days after touching records last week. However, all three are within 1% or less from their respective records.
The latest retail sales figures for October showed consumers were increasing their spending, with sales jumping 1.7%. That compares to a 0.8% increase in the prior month. The report showed broad strength in a number of categories from autos to sporting goods. Online sales were up 10.2% from a year ago. The gains came even as consumer prices surged 6.2% year-over-year last month, inflation not seen since the 1990s.
Home Depot was the biggest gainer in the Dow by far on Tuesday, jumping more than 6% after results topped estimates and net sales jumped 9.8% last quarter. The home improvement retailer also said fiscal fourth-quarter sales were already tracking higher than last quarter, pointing to a possible strong year-end finish.
In another sign of consumer strength, Walmart reported third-quarter profit and revenue well above estimates, and U.S. same-store sales jumped 9.2%, excluding fuel. However, digital sales saw growth of just 8%, compared to Street expectations of 20.5%. The stock pulled back 2.5% and was the Dow’s biggest decliner.
“With the robust retail sales read and solid start to retail earnings, it’s crystal clear that inflation isn’t standing in the way of consumers,” said E-Trade’s Mike Loewengart. “Despite some hiccups on the labor market and inflation fronts, this could serve as the vote of confidence investors needed signaling that the economy is still chugging along nicely. As we narrow in on the holiday shopping season, the question remains if better than expected numbers from retailers from Q3 can continue to close out 2021.”
Fund managers make their biggest bets on U.S. stocks in 8 years as growth fears recede
Global fund managers were the most overweight to U.S. equities in eight years as their concerns over ebbing growth receded, according to the latest fund manager survey from Bank of America.
The allocation to U.S. equities jumped 13 points in November to 29% overweight — the highest reading since August 2013, the monthly survey found. These investors report being overweight U.S. equities since March 2019, which has continued to be a winning bet.
What’s interesting is the assembled fund managers say emerging market equities EEM, 0.12% will produce the best returns next year, by a 34% to 30% margin over the S&P 500 SPX, 0.47%.
Bitcoin BTCUSD, -6.83% was forecast to be the best asset next year by 12%, followed by oil CL.1, -0.09% and gold GC00, -0.83% at 10% each, and single-digit showings for short- TMUBMUSD03M, 0.050% and long-dated TMUBMUSD30Y, 2.024% Treasury securities.
Global growth expectations have stabilized. A net 3% expect improvement, compared to a net 6% who did not last month. In March, 91% expected improvement. Just 6% say there will be a recession in the next 12 months.
The monthly change saw investors sour on inflation plays, as energy, industrial and banks positions declined, while U.S. equities, consumer discretionary, bonds and tech improved. But relative to the average position of the last decade, investors are still overweight inflation assets.
That benign view toward inflation also manifested itself in yield curve expectations, where those expecting a steeper curve fell to the lowest level since February 2019.
The survey covered 388 managers with $1.2 trillion in assets under management, Bank of America said.
News Around The web:
Retail numbers ahead
With inflation concerns looming large and the holiday shopping season approaching, a retail sales report that’s scheduled to be released on Tuesday is likely to be watched more closely than usual. The last monthly report, covering September, showed that sales at retail stores, restaurants, and online sellers climbed a seasonally adjusted 0.7%.
The price of bitcoin surged to a record high, only to give up much of its gain later in the week. After ending the previous week at around $61,000, the cryptocurrency briefly surged above $68,000 on Wednesday. Bitcoin couldn’t sustain that peak level, and the price ended the week around $62,000.
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Weekly unemployment claims, U.S. Department of Labor
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