Weekly Market Commentary November 3rd 2021

The Markets

The road to recovery is slow and bumpy.

Last week, we learned from the [U.S.] Bureau of Economic Analysis that economic growth south of the border slowed in the third quarter. gross domestic product (GDP), which is the value of all goods and services produced in a country, increased by 2 percent annualized in the third quarter, compared to over 6 percent in the second quarter.

Consumer spending dropped sharply during the period. Jeff Cox of CNBC reported:

“Spending for goods tumbled 9.2%, spurred by a 26.2% plunge in expenditures on longer-lasting goods like appliances and autos, while services spending increased 7.9%, a reduction from the 11.5% pace in [the second quarter]. The downshift came amid a 0.7% decline in disposable personal income, which fell 25.7% in [the second quarter] amid the end of government stimulus payments. The personal saving rate declined to 8.9% from 10.5%.”

The change may reflect the reluctance to pay higher prices caused by supply chain disruptions, or a drop in disposable personal income, due in part to the Biden administration’s heavy-handed vaccine mandates, which have resulted in many employers losing significant portions of their workforces; one example is New York where the city has just placed over nine thousand city workers on unpaid leave, including firefighters and police officers, in a city where the crime rate is already significantly higher than pre-pandemic levels.

Despite slower economic growth and lower consumer spending, many companies managed to remain profitable during the third quarter. At the end of last week, John Butters of FactSet reported:

“At this point in time, more S&P 500 companies are beating EPS [earnings-per-share, which is a measure of a company’s profits] estimates for the third quarter than average, and beating EPS estimates by a wider margin than average…The index is now reporting the third highest (year-over-year) growth in earnings since [second quarter] 2010. Analysts also expect earnings growth of more than 20% for the fourth quarter and earnings growth of more than 40% for the full year.”
 
It appears that public companies remain adaptable and resilient despite the ongoing challenges.

Last week, the three major U.S. stock indices finished the week at record highs, while the S&P/TSX Composite index finished the week slightly lower. The yield curve flattened as yields on longer-term U.S. Treasuries and Government of Canada bonds moved lower.

Source: FactSet

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