All Three Major Indexes Close at All-Time High, October Strongest Month of 2021

Key Takeaways

• S&P 500 closed at 4,605.38, an ATH, up from 4,544.90. The last 10 days have marked the best reaction to earnings of S&P 500 components in the last two years.
• Our team noticed that companies that miss earnings appear to be getting more punished this season than in recent quarters. We expect to see differentiation increasing instead of sectors broadly moving together.
• October has been the best month of the year so far. The “Everything Rally” has begun and we suspect it will continue into the end of the year.
• Even more impressive is that the market has shown strength despite two tech-titans having major earnings misses. AMZN 0.82%  and AAPL 5.94%  missed. MSFT 2.28%  is now the largest company in the world by market cap.

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Sometimes markets can be spooky in October as many investors seemed to expect. However, there were voices in the wilderness that predicted this would be a strong month and would actually yield an Everything Rally. The DJIA closed at 35,819.29 and the Nasdaq finished at 15,498.39 despite a drag from two of the world’s largest companies missing expectations.

The market has been exceptionally strong in October. We are likely beginning the end of the most accommodative Federal Reserve posturing in history and the Federal Reserve is expected to announce the beginning of the long-awaited taper at their meeting next week. While Powell has likely prepared markets pretty well for this development, the big challenge will be what comes after and how long the world’s most powerful central bank waits to raise rates.

The market closed at an all-time high above 4,600 which was originally our year-end target but which we recently raised to 4,800. Amazingly, two of the cornerstones of the index, Apple and Amazon missed on earnings. Apple had not missed since 2017. Despite the miss, which seems largely attached to supply-chain issues including use of legacy chips, demand for the company’s products remains strong and it still achieved impressive YoY growth.

Amazon on the other hand missed with less silver lining but for reasons that you wouldn’t necessarily associate with the company’s earlier history. Steel shortages and prices are now impacting earnings as the company builds out a massive physical infrastructure. The primary capacity restraint for this company was labor though. The company has recently added 628,000 employees and is struggling to add well over a hundred thousand more in the anomalous post-COVID labor markets. Being as big as these guys have gotten certainly can be a big pain.

One of the more interesting consequences of these misses is that at market close on Friday Microsoft surpassed Apple as the world’s most valuable publicly-traded company. As of the close MSFT 2.28%  had a market cap of $2.49 trillion compared to Apple’s $2.46 trillion. While this very well could reverse given the strength of sales and demand for Apple’s product it is nonetheless a notable development. There was a day when these two titans missing earnings would spook the market. The strength of earnings across the economy is undeniable though. Our Head of Global Portfolio Strategy, Brian Rauscher, predicted that we would have a blockbuster earnings season despite a litany of macro concerns.

The rise in the power, prominence, and unprecedented penetration of Big Tech and the products they offer into our lives is an unprecedented development. The power of these firms and the way they have radically transformed our lives rivals the power of states in many ways. The centuries-old institution that dominates political reality is far behind the Tech industry in many ways and is becoming more and more reliant on it as well. While the East-India Company and the Energy industry have wielded significant political influence in the past, in many ways it doesn’t approach the awesome power of Silicon Valley and China’s technology industry.

If you’re a competent hill staffer on technology issues, the odds are you’ve already been hired by one of the Big Tech firms with a compensation package that congressional budgets couldn’t hope to compete with. While the recent crackdown across the Pacific by the Chinese Communist Party on some elements of its domestic industry is often viewed through ideological lines, we believe a more accurate way to look at it is the first major salvo of states against the most powerful and influential commercial interest in history. It makes the dominance achieved by the East-India Company look like child’s play.

There are some profound questions at the intersection of cryptocurrency, technology, and the state that are only in the very early innings of being answered. Will the power of the state be supplanted by unprecedented and very rapid technological change? Or will the state survive yet another phase of technological change and assert its dominance. While some may think the answers from China provide clear-cut evidence, let’s remember that the crackdown on large companies like Alibaba was harsh, but was also largely superficial.

Nothing China does will change the fact the Alibaba, Amazon, Google, and Microsoft are by meeting the bulk of cloud demand by far. The social forces unleashed in that country by a rising commercial class remind us of some of the forces the Bourbon Dynasty tried unsuccessfully to contain in the late 18^th century.

In the United States, building a social media following has become essential to getting elected and fundraising. Facebook, despite its rebranding, could be argued to be having a similar effect on society as newspapers before the First World War, although this is surely not a perfect metaphor. The lines of power are blurring, and the only certainty is that the future is uncertain. We live in a dynamic age marked by the trauma of a recent mass-casualty pandemic and the promise of technological strides that promise to improve human life and society more than any inventions in the past. We look forward to analyzing and addressing this exciting period of change with you and giving you data-driven insights that help prepare you for a rapidly changing world! Happy Halloween to all our readers! We wish you and your loved ones a safe and happy holiday!