Weekly Update

Stock Investors Look Increasingly Confident

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Published November 5, 2021


A pivotal week for stocks in the near-term as the Federal Reserve (finally!) confirms its plan to begin reducing (aka “tapering”) its portfolio of bonds. This gradual stepping back from active participation in the bond markets is viewed as a first step in the central bank’s path to raising interest rates. The move has been signaled by the group for months, such that interest rates have already digested that information by shifting upward as the yield curve chart below shows.

Interest rates have shifted upward

Markets could well breathe a sigh of relief once the Fed begins this process, having anticipated this for many months now. Coming at a seasonally strong time for stocks and with many earnings reports providing a good tailwind, the riskier of stock indexes broke out this week. Below are, in order of increasing risk, midcap stocks, smallcap stocks, microcap stocks. They all are breaking out of multi-month ranges, to varying degrees.

Microcap index breaks out

Smallcap index breaks out

Microcap index breaks out

Beyond the index level, we see similar market enthusiasm from retailers, following similar breakouts from tech, consumer, and financial stocks in recent weeks.

Retail sector breaks out

In short, the stock market is riding a wave of solid earnings, reduced uncertainty around the Federal Reserve’s near-term actions, and entering the seasonally strongest part of the year. That is a strong hand for investors that should bode well for stocks in the coming weeks.

Market Update

Investors focused this week on the Federal Reserve’s meeting outcome, where the central bank was projected to announce the beginning of the end of their exceptional support for markets. The bond market support from the group was put in place during the worst of the Covid-19 pandemic over a year ago. Stocks continued their four-week rise in Monday’s trade with the index up +0.2%. Tuesday saw another +0.4% with strong earnings lifting stocks on companies ranging from computer networking (ANET) to chemicals (DD) to retailers (UAA) to drug companies (PFE). Fed Chair Powell’s comments on Wednesday sent stocks higher once again with the Nasdaq popping +1% as investors viewed the Fed’s statement as being less worried about inflation and more inclined to keep interest rates lower for longer. The good market response continued Thursday with a +0.4% gain as earnings from semiconductor company Qualcomm (QCOM) provided further rally fuel. The monthly jobs report came Friday with a better-than-forecast result. Stocks rose yet again adding +0.4%. It was the 10th straight day of gains for the Nasdaq 100 (QQQ).

The recent stock rally broadened this week with the S&P 500 (SPY) gaining +2.02%. The Nasdaq 100 (QQQ) added +3.23%. Smallcap stocks (IWM) blasted out of their months-long range this week with a +6.03% leap.

Warm wishes and until next week.