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October 2021 Market Commentary

October 2021 Market Commentary

So far so good in October, as we near the end of the historically “worst six months.”  Our expectation was for a positive month in the stock market and it looks like we will get it.  And while September closed near the low for the month, October has quickly recovered much of what was given back last month.

Our Mid-Term Cycle signal has been positive since Oct 7th and we’ve gotten back to being aggressively in the market.  Last month we said we were hoping to see the market pick a direction and run – and that is what we got.  And that strength has held through the end of the month.  Hopefully it can maintain that momentum through November. 

As of Wednesday night (October 27th 2021), our Shadowridge Dashboard showed Positive to Negative sectors as 10 to 1.  Finally, we’re seeing broad market participation that helps justify a continued move upwards in the market indexes.  For now, things are looking positive for the near term.

Last month I mentioned the overall valuation (Price/Earnings) issue in the S&P 500 as measured by the Shiller PE method.  On January 1, 2021 it was already overvalued at 34.51.  To put that into perspective, only the Tech Bubble saw a higher level.  The current level is at 38.96.  The highest ever peak was just under 44.  Why do we care about this so much?  Historically, as the value of the Shiller CAPE rises, the expectation of returns for the following decade declines. 

The Jan 1, 2000 peak in the Shiller PE preceded a “lost decade” of essentially zero market returns at the end of 10 years (2000 – 2010).  There were some great up years in that decade, as well as down years, but by the end of the decade, little actual progress had been made.  To us, this is yet another reason why a buy-and-hold investing strategy is undesirable, both back then and now, as well as in the coming years.

This month’s chart is something we’ve been looking at during our Monthly webinars.  It shows the past 10 years of the S&P 500 month by month and how often the returns are positive for each month.  What we found interesting, and maybe unexpected, is that November has the highest success rate over that time period.  It is often said or thought that December should be the most successful month, but this hasn’t been the case, at least not recently.  This year, we’re hoping the market can continue that string of wins before we get into December to finish the year off strong.

Bonds – the Aggregate Bond Index AGG is at -1.90% YTD in 2021.  This traditional diversifier has been a drag this year, along with US Treasuries across the board.  The 7-10yr Treasury bond index is -4.20% this year.  Historically, they offer a way to spread market risk, but recently, they have provided little benefit.  High Yield bonds remain strong, being up around 2.72% through October 27th of 2021 (FastTrack Data).  And since High Yield bonds also tend to do well comparatively during rising-rate environments, that is where we’ll continue to be focused.

Don’t forget to catch our monthly webinar, where I dive deeper into what I have mentioned in this newsletter commentary.  For me, nothing tells the story as much as visuals, so I really enjoy the webinar for digging into what we’re doing with investment decisions.  Will and Laura will also be presenting timely topics to help you face life’s financial challenges and opportunities.  We hope you can join us – Friday, November 12th at noon Central time. 

You can sign up for the webinar here.  We look forward to seeing you there!


1 The Standard and Poor’s 500 is an unmanaged, capitalization-weighted benchmark that tracks broad-based changes in the U.S. stock market. This index of 500 common stocks is comprised of 400 industrial, 20 transportation, 40 utility, and 40 financial companies representing major U.S. industry sectors. The index is calculated on a total return basis with dividends reinvested and is not available for direct investment.

2 Charts are for informational purposes only and are not intended to be a projection or prediction of current or future performance of any specific product. All financial products have an element of risk and may experience loss. Past performance is not indicative of future results.