Are Equities Setting Up for a Huge Fourth-Quarter Rally?
A sharp rally to end the week resulted in a mixed equity picture. The S&P 500 finished up 0.7%, while the NASDAQ and Russell 2000 finished slightly in the red.
Optimists Rejoice a More Data-Dependent Fed
Equities surged on Wednesday as Chairman Powell spoke following another 75-basis-point increase in the federal funds rate. This helped bring equities into the green for the week.
Earnings season is moving. 20% of S&P 500 Index companies have reported their financial performance for the third quarter of 2021. The companies that have reported show earnings growth of 45% over the third quarter of 2020.
The S&P 500 Index was down 0.80% this week. There is concern supply chain issues may continue into next year leading to tighter margins. The spread of the Delta variant also contributed to downward pressure on the market this week.
The S&P 500 and NASDAQ finished near their all-time highs after a flat week. But once again, this masks weakness under the surface. The Russell 2000 Index of small caps fell 1.6%.
The S&P 500 inched up to again make a new all-time high led by tech mega-caps. Small caps were down 2.2% and continued their notable underperformance of late. Emerging markets remain down on the month but are not faring as bad as domestic small cap equities.
Equity indices languished on the week inside a very tight range. The S&P 500 gained 0.3% and the NASDAQ Composite gained 0.2% as heavyweights stalled. However, oversold names rallied as did small caps.
With a week having passed since Election Day, it would seem the path forward, politically speaking, should be relatively clear. Americans came out in force to cast their votes as the turnout for the 2020 election was the highest seen in 50 years, and as of last weekend, Joe Biden was declared by the Associated Press to be the president-elect.
The markets were positioned for this to be one of the highest-volatility elections ever. As of this writing, there are several states extremely close in their counts. Scrutiny on the ballot counting process added fuel to the fire, and it will likely be a lengthy process before a conclusion is reached.
Equities advanced on the week despite initial weakness from increasing lockdown measures across the country. The S&P 500 advanced 1.8% on the week, but this time it was led by value and laggard names.