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Monthly Gains & Potential Volatility

S&P 500, Nasdaq, as well as Dow finished October at record highs, notching gains for the month despite soft Amazon, and Apple results. 

In fact, S&P 500 and Nasdaq booked the biggest monthly gains since November 2020

The S&P 500 gained 0.2%, after opening lower. The gains brought the benchmark index up 6.9% for October, its biggest monthly increase since last November. Meanwhile, the Nasdaq 100 pushed 0.5% higher, offset by gains in Tesla Inc., as well as Meta Platforms Inc., after its name change from Facebook Inc.  

The yield on the U.S. 10-year Treasury fell to 1.55% after earlier gains. 

The latest GDP data in the U.S. showed that growth slowed more than expected in the third quarter, hampered by supply chains and a surge in Covid-19 cases. A separate report showed that weekly jobless claims fell to a pandemic low, and personal spending slowed in line with analysts’ estimates in September. 

 Here are the closing levels on Friday: – 

 Last Change   %Change 
Dow Jones 35,819.56+89.08  +0.25%
S&P 500 4605.38 +8.96  +0.19%
Nasdaq Comp 15498.39 +50.27 +0.33% 
US 10Y   1.561%  
VIX 16.26 -0.17-1.63%

The Federal Reserve’s 2-day meeting on Tuesday and Wednesday, 2 November 2021 and 3 November 2021 respective, as well as the employment report, are the big events for the week. 

The central bank is widely expected to announce that it will begin to unwind its $120 billion in monthly bond purchases, and end the program entirely by the middle of next year. 

In a report to clients late Friday, entitled Goldman Now Sees Fed Hiking Rates in July as Inflation Lingers, economists led by Jan Hatzius said the Fed will raise its benchmark from a range of zero to 0.25% soon after it stops tapering its massive asset-purchase program. A second increase will follow in November 2022, and the central bank will then raise rates 2 times a year after that. 

Over the weekend, Bloomberg reported China’s factory activity contracted for a second straight month in October, as electricity shortages and soaring commodity prices continued to weigh on manufacturers. 

As was mentioned last week, the bulls have control and while the above are causes for concern, the price action suggests we are heading for a higher close for the year. 

Is the market getting complacent and ignoring any bad or negative news? Will the bears come out of hiding? Is it time to book some profits for the bulls? 

It is best we prepare for some volatility along the way. 

Source: CBOE, Reuters, Bloomberg  

This commentary is written by James Gomes 
James has been in the finance industry for over 30 years and most recently worked for a large US bank for more than 20 years. 

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