Financial Economic Outlook

Published Friday, November 5, 2021 at: 6:55 PM EDT

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The stock market closed at a new record high again on positive economic fundamentals, better than expected corporate earnings reports and a bright earnings outlook. Key economic statistics released this past week indicate further profit growth is just ahead. 

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Friday morning, the Bureau of Labor Statistics reported that 531,000 new jobs were created in October, much more than the 435,000 expected by Wall Street.

Last month, the same report on new-job formation in September, was a negative surprise.

New-job formation is always a volatile monthly statistic, and the pandemic has made it even less predictable, as is shown in this chart.

On top of the better-than-expected new-jobs number reported for October, Friday’s BLS release included an upward revision of last month’s disappointing numbers.     

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This chart of purchase orders made by service sector companies surged past its previous record high in October. 

Services account for 89% of economic activity in the U.S and create 91% of non-farm jobs, which is why we share its current signal here regularly. 

The ISM Service Purchasing Managers Index soared from 61.9% to 66.7%, a big move from already lofty heights by historical standards.  

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The green line in this chart represents the history of earnings projections by Wall Street analysts for the third quarter of 2021. Earnings projections for the third quarter of the year soared in recent weeks. Actual earnings for the quarter have been reported by companies in the last few weeks. About 80% of the Standard & Poor’s 500 have reportedly reported their third-quarter earnings. The surge in earnings can be expected to be topped in the fourth quarter of 2021 because the economy is expected to grow by 4.8% versus a 2% growth rate in the third quarter.  

To be clear, corporate earnings are driven by growth in the economy. The economy grew at a slow 2% rate in the third quarter of 2021, but the consensus forecast of economists is for a 4.8% growth rate in the fourth quarter. Thus, it is reasonable to expect earnings growth in the fourth quarter will be higher than in the third quarter. While economic growth drives earnings, earnings growth drive stock prices, which explains today’s closing record high in the S&P 500 stock index.  

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The Standard & Poor’s 500 index closed this Friday at an all-time high for the second week in a row. At 4,697.53, the index gained +0.37% from Thursday and +1.98% from last week. The index is up +70.94% from the March 23, 2020, bear market low.

 


Nothing contained herein is to be considered a solicitation, research material, an investment recommendation, or advice of any kind, and it is subject to change without notice. Any investments or strategies referenced herein do not take into account the investment objectives, financial situation or particular needs of any specific person. Product suitability must be independently determined for each individual investor. Tax advice always depends on your particular personal situation and preferences. You should consult the appropriate financial professional regarding your specific circumstances. The material represents an assessment of financial, economic and tax law at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete, and is not intended to be used as a primary basis for investment decisions. This article was written by a professional financial journalist for Advisor Products and is not intended as legal or investment advice.

This article was written by a veteran financial journalist based on data compiled and analyzed by independent economist, Fritz Meyer. While these are sources we believe to be reliable, the information is not intended to be used as financial advice without consulting a professional about your personal situation.

Indices are unmanaged and not available for direct investment. Investments with higher return potential carry greater risk for loss. Past performance is not an indicator of your future results.

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