October 2021 Market Update

What impacted markets over the last month?

  • Last month, we noted the September meeting of the Federal Open Market Committee (FOMC) was a key event on the horizon and it proved to have a sizable impact on markets over the last four weeks. Coming out of the FOMC meeting, markets revised their expectations for the pace of tapering and rate hikes. On Sept. 15, Fed funds futures priced in a 77% chance of one 0.25% rate increase by the Dec. 2022 FOMC meeting. By Oct. 15, markets priced in a 100% chance of one rate hike and a 77% chance of a second over the same time frame. 

How were diversified portfolios affected?

  • Recently, the relative underperformance of large-cap U.S. growth stocks has been more closely linked to rising interest rates than what is historically normal. The same story played out over the last month, with the 10-year U.S. Treasury yield rising ~20 basis points, and large growth stocks lagging large value by 3%.
  • High beta stocks outperformed the broader market for the month of September and through the first two weeks of October. Small-and mid-cap U.S. value stocks have been boosted by their exposure to sectors like energy and financials; those two sectors account for 31.4% and 24.1% of the small and mid value indices (compared to 14% of the S&P 500 Index). 
  • Markets now expect the pace of tapering the FOMC’s $120 billion in monthly bond purchases to proceed faster than expected prior to the September meeting. We saw bond yields adjust to new Fed expectations over the last month, serving as a drag on intermediate & long duration U.S. Treasury performance.

What’s on the horizon?

  • 10/20 – Improving demand and supply constraints have pushed oil prices higher over the last eight weeks, with West Texas Intermediate crude rising from $62 to $82 per barrel since the last week of August.
  • 10/29 – Sentiment recently dropped below its 2020 pandemic trough, to its lowest level since 2012, as the inflation outlook weighs on U.S. consumers.

To read the full Update please click here.

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