Market Perspective for November 1, 2021

Tesla (TSLA) lifted the stock market on Monday with an advance 8.56 percent.  The Russell 2000 Index rallied 2.65 percent, while the Nasdaq increased 0.63 percent. The Dow Jones Industrial Average gained 0.26 percent and the S&P 500 Index 0.18 percent.

The Federal Reserve will announce its taper of quantitative easing this week. The market expects a nine-month taper that starts in November and ends in July. Official have said rate hikes could start as early as December 2022. Meeting those expectations would be dovish because the market has been moving their rate hike expectations up.

Central banks in Canada and Australia shocked the market by abruptly ending quantitative easing last month. The 2-year yields in those countries shot higher, while long-term bond yields declined. Speculators have been betting on a hawkish turn at the Federal Reserve in part because other central banks have moved faster. The odds of a June 2022 rate hike are up to 70 percent.

Speculators are taking assets such as Tesla (TSLA), crude oil and Bitcoin to highs. Last week, Tesla’s market capitalization climbed past all the publicly listed automakers combined, despite Tesla selling about 1 percent of automobiles. Berkshire Hathaway’s (BRKB) profit exceeds Tesla’s sales, but Tesla’s market cap is double Berkshire’s. Tesla has gained about 40 percent in the past two weeks.

Crude oil closed Monday at $84.05 per barrel, near its 52-week high, reigniting expectations of $100 oil by the end of the year. The 10-year Treasury yield close at 1.58 percent, up slightly from Friday. The U.S. Dollar Index was down slightly on Monday.

The October ISM manufacturing PMI came in lower than expected as price increases continued to impact the index. Manufacturers are earning good profits from high prices, but higher prices are deterring new orders. China’s PMI also missed because of its energy shortage, along with the supply chain disruptions. The ISM services PMI will be reported on Wednesday.

The Federal Reserve meeting is Wednesday. Federal Reserve Chairman Powell will speak after the meeting.

The October employment report will be out on Friday. Economists are looking for 450,000 new jobs and a drop in the unemployment rate to 4.7 percent. They also see wage growth slowing from September’s 0.6 percent to 0.4 percent.

The heart of earnings season has passed with Big Tech having reported, but this week will see some big names such as Pfizer (PFE), Alibaba (BABA), Square (SQ), Moderna (MRNA), Uber (UBER), Amgen (AMGN), Zillow (Z), Qualcomm (QCOM) and Johnson Controls (JCI).

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