S&P 500 Has Biggest Monthly Gain of 2021 in October

The S&P 500 rose close to 7 percent for the month as strong earnings reports and progress toward a spending deal in Washington helped investors shake off a number of concerns.

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Wall Street’s climb makes October the best month this year.

Oct. 29, 2021, 3:19 p.m. ET

Data delayed at least 15 minutes

Source: FactSet

By: Ella Koeze

Strong earnings reports, talks in Washington toward a big-ticket spending deal and a continued decline in coronavirus infections came together in October to make it the stock market’s best month this year.

By Friday, the S&P 500 was on track to end the month with a gain of about 6.7 percent — its best showing since November 2020, when stocks jumped more than 10 percent as drug companies reported strong results for their coronavirus vaccine candidates. The index was slightly higher in midafternoon trading, and on track to close at another record.

The rally came as investors shook off a number of concerns that had dogged Wall Street just a month ago. In September, worries that high inflation, slowing growth and supply chain logjams would lead to economic misery for American companies and consumers, pulling the S&P 500 down about 4.8 percent. It was the benchmark index’s worst month of 2021.

But improving prospects on several fronts fueled the rebound. Earnings reports from the country’s biggest companies overwhelmingly came in better than investors had expected, driving gains in a number of individual stocks. Of the 244 companies in the S&P 500 to report third-quarter results as of Thursday, 82 percent have done better than Wall Street analysts had forecast, according to the data provider Refinitiv.

A number of large technology stocks, whose sheer size gives them an outsize influence over benchmarks like the S&P 500, rallied as well. Microsoft rose more than 16 percent and Alphabet climbed more than 10 percent in the month after reporting solid financial results. And a deal to sell 100,000 of its electric cars to the rental company Hertz pushed Tesla’s stock value beyond $1 trillion for the first time.

As oil prices continued to rise, energy companies also profited. On Friday, Exxon Mobil and Chevron both reported a third-consecutive quarterly profit of more than $6 billion. Their shares rose 9.5 percent and 12 percent in October. Energy companies were the best performing shares in the S&P 500, rising so far this month.

Not every report was so upbeat. On Friday, shares of Amazon tumbled 3.1 percent after the company reported its slowest sales growth in almost seven years as the pandemic-fueled surge in online shopping eased. Apple also dropped 2.1 percent after its quarterly results fell short of expectations. Still, thanks to gains earlier in the month, both stocks ended October higher.

Investors were also encouraged by signs of progress among Democrats in Washington toward an agreement on a spending plan. On Thursday, President Biden said the party was coalescing around a $1.85 trillion economic and environmental spending bill — although it remains far from certain that an agreement will take shape.

If it does, though, it would pave the way for approval of a separate $1 trillion infrastructure spending bill that has bipartisan support, and hopes for the surge in infrastructure spending lifted shares of construction and materials companies that will benefit from it.

It helped too that the coronavirus surge driven by the Delta variant began to quickly fade, with the number of cases in the United States falling by more than half by the end of October.

Understand the Supply Chain Crisis

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Covid’s impact on the supply chain continues. The pandemic has disrupted nearly every aspect of the global supply chain and made all kinds of products harder to find. In turn, scarcity has caused the prices of many things to go higher as inflation remains stubbornly high.

Almost anything manufactured is in short supply. That includes everything from toilet paper to new cars. The disruptions go back to the beginning of the pandemic, when factories in Asia and Europe were forced to shut down and shipping companies cut their schedules.

First, demand for home goods spiked. Money that Americans once spent on experiences were redirected to things for their homes. The surge clogged the system for transporting goods to the factories that needed them — like computer chips — and finished products piled up because of a shortage of shipping containers.

Now, ports are struggling to keep up. In North America and Europe, where containers are arriving, the heavy influx of ships is overwhelming ports. With warehouses full, containers are piling up at ports. The chaos in global shipping is likely to persist as a result of the massive traffic jam.

No one really knows when the crisis will end. Shortages and delays are likely to affect this year’s Christmas and holiday shopping season, but what happens after that is unclear. Jerome Powell, the Federal Reserve chair, said he expects supply chain problems to persist “likely well into next year.”

Wall Street has been concerned about rising prices for months, and though inflation remains high, several recent measures of price gains eased concerns about the continuing increases somewhat. The Producer Price Index, a measure of wholesale prices that is likely to filter through to consumers in the following months, rose less quickly than expected in September, and on Friday the Personal Consumption Expenditures price index, which is the Federal Reserve’s preferred inflation gauge, also signaled that prices were increasing less quickly than they did over the summer.

Fast rising prices could prompt the Fed to begin to pull back on its support for the economy, including by eventually raising interest rates. That could hurt risky investments like stocks. So it also helped that some economic data highlighted ongoing risks to the economy, something that might keep the Fed from moving too quickly, said Fiona Cincotta, senior financial markets analyst at Forex.com.

For example, thanks in part to supply-chain bottlenecks, the U.S. economy grew just 0.5 percent in the third quarter, the weakest growth since the recovery from the pandemic began, the government said on Thursday.

“If you raise interest rates too quickly, the economic recovery could come to a standstill,” Ms. Cincotta said.

The Fed has made it clear it is not planning to raise its benchmark interest rate — the strongest tool it has to affect the economy — anytime soon, but the central bank is expected to begin winding down a bond-buying program that has been in place since early in the pandemic. That program has helped keep cash flowing through the economy.

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