Stocks closed at a record high for the third straight week. The primary catalysts this time were the decidedly less ominous policy decisions by both the Federal Reserve (the Fed) and the Bank of England (BOE). Also contributing to the upbeat mood were continued strong third quarter earnings, and a potentially game-changing Covid therapy from Pfizer.

As anticipated, the Fed did announce the start of tapering, beginning this month, with the intention of completely winding down its bond buying program by the middle of next year, assuming the economy evolves as expected. Fed Chair Jerome Powell went to lengths to make it clear that any decision to eventually raise interest rates was independent of the taper decision. And the Fed stuck to its view that the current spike in inflation would likely be transitory, but did leave open the possibility that it might not be. Nevertheless, investors interpreted the Fed’s message as reducing the likelihood of several rate hikes by the end of next year, as well as a first hike coming as early as mid-year.

Bond yields reacted quickly to the Fed’s decision. The yield on the two-year Treasury note had risen from 0.22 percent on September 21 to 0.51 percent by last Tuesday. Following the Fed’s decision, however, the yield began to decline sharply, ending the week at 0.40 percent. The ten-year note yield fell 15 basis points, closing the week at 1.45 percent. Fed fund futures also eased following the decision. They are still anticipating the possibility of rate hikes beginning next year, but the probabilities declined. 

The Fed got some good news on Friday with the October jobs report, which evidenced further progress toward the Fed’s objective of full employment, especially welcome following a couple of months of sluggish job growth. The economy created 531,000 new non-farm jobs during the month, well above the expected 450,000, and added an additional 235,000 from revisions to the prior two months. The unemployment rate fell to 4.6 percent. Private payrolls were particularly strong, especially in the travel and leisure sector as the economy continues to normalize.

The Bank of England was widely expected to announce a rate hike last Thursday in response to its own inflation concerns. But the BOE surprised markets by leaving rates unchanged, setting off an even sharper reaction in the bond market to that in the U.S. UK ten-year yields plunged 23 basis points to end the week at 0.84 percent. And two-year note yields collapsed by 30 basis points to close at 0.40 percent.

Stocks Rise For Fifth Straight Week as Third Quarter Earnings Continue to Exceed Expectations

The S&P 500® Index gained 2.0 percent last week. It was the fifth straight weekly gain for the index, and the best since late June. During those five weeks, the index has climbed 7.8 percent, and experienced only six down days. Especially strong at week’s end, following news of encouraging results from a Covid pill study by Pfizer, were so-called reopening stocks in a position to benefit from the promise of further and faster progress against the pandemic. Conversely, other pharmaceutical companies competitively disadvantaged by the news, suffered sharp losses. Third quarter earnings results also continued to exceed expectations. According to Factset, with roughly 90 percent of results complete, aggregate earnings are now expected to rise by 39.1 percent. At the end of the third quarter, earnings were forecast to rise by 27.4 percent. Revenues are also exceeding expectations, on target to rise 17.3 percent, up from 14.9 percent at the end of the quarter. And fourth quarter expectations have remained steady.

Eurozone equities have been on a similar run to those in the U.S. The EuroStoxx 50 index has also risen for five straight weeks, gaining 8.1 percent. That gain is trimmed to 7.8 percent for dollar-based investors. The MSCI EAFE index overall has risen 4.8 percent in dollar-terms during this five week period.

Infrastructure Bill, October Consumer Price Index Headline What Investors are Watching for This Week

On the fiscal policy front, the House passed the bipartisan infrastructure bill that had been held up over intra-party negotiations among Democrats regarding the scope and timing of the President’s social infrastructure package. Those negotiations are ongoing.

Wednesday’s scheduled release of the October consumer price index headlines this week’s economic calendar. The Bloomberg consensus anticipates a year-over-year increase of 5.9 percent in the headline rate, up from 5.4 percent in September, and an increase to 4.3 percent from 4.0 in the core rate. An increase of such magnitude would do little in the near-term to reinforce the view that rising inflation will prove to be transitory. Along with the strong October jobs report, however, it would reinforce the Fed’s decision to begin tapering.

Important Disclosures:
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances.

Some of the opinions, conclusions and forward-looking statements are based on an analysis of information compiled from third-party sources.  This information has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Ameriprise Financial. It is given for informational purposes only and is not a solicitation to buy or sell the securities mentioned. The information is not intended to be used as the sole basis for investment decisions, nor should it be construed as advice designed to meet the specific needs of an individual investor.
Investing involves risk including the risk of loss of principal.

Stock investments involve risk, including loss of principal. High-quality stocks may be appropriate for some investment strategies. Ensure that your investment objectives, time horizon and risk tolerance are aligned with investing in stocks, as they can lose value.

International investing involves certain risks and volatility due to potential political, economic or currency instabilities and different financial and accounting standards
There are risks associated with fixed-income investments, including credit risk, interest rate risk, and prepayment and extension risk. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer term securities.

A 10-year Treasury note is a debt obligation issued by the United States government that matures in 10 years.

The personal consumption expenditure (PCE) measures of the prices that people living in the United States pay for goods and services. The PCE price index is known for capturing inflation (or deflation) across a wide range of consumer expenses and reflecting changes in consumer behavior.

The Employment Cost Index (ECI) is a quarterly economic series published by the Bureau of Labor Statistics that details the growth of total employee compensation. It tracks movement in the cost of labor, as measured by wages and benefits.

Past performance is not a guarantee of future results.

An index is a statistical composite that is not managed. It is not possible to invest directly in an index.

The Standard & Poor’s 500 Index (S&P 500® Index), an unmanaged index of common stocks, is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in market prices but excludes brokerage commissions or other fees.  It is not possible to invest directly in an index.

Morgan Stanley Capital International EAFE Index (MSCI EAFE), an unmanaged index, is compiled from a composite of securities markets of Europe, Australasia and the Far East.

The EuroStoxx 50 index is compiled of fifty of the largest and most liquid stocks in the Eurozone.

Definitions of individual indices and sectors mentioned in this article are available on our website at ameriprise.com/legal/disclosures in the Additional Ameriprise research disclosures section, or through your Ameriprise financial advisor.

Third party companies mentioned are not affiliated with Ameriprise Financial, Inc.

Investment products are not insured by the FDIC, NCUA or any federal agency, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.

Ameriprise Financial Services, LLC. Member FINRA and SIPC.