November 8, 2021
The S&P 500 Index surged to a record high in October, recouping all its September losses, plus some. Better-than-expected calendar third-quarter corporate earnings underpinned the equity market strength, as did increased investor risk appetite and the T.I.N.A.-effect (i.e., there is no alternative). Led by strength in consumer discretionary, energy, and electronic technology, all eleven GICS sectors generated positive one-month returns.
Portfolios are highly diversified, with an emphasis on quality growth stocks with reasonable valuations. Falling excess liquidity and rising interest rates are poised to pressure valuation multiples, with upward earnings revisions remaining the key driver of stock outperformance. Technology remains a preferred sector given favorable cyclical and secular demand drivers, as is the healthcare sector for its compelling combination of visible earnings growth and attractive valuations. Furthermore, we took advantage of pullbacks to add to reopening beneficiaries that possess a lower sensitivity to inflationary pressures. We also increased positions in select capital goods companies as strong pricing power and the upside from rising infrastructure spending considerably outweigh the risk from rising costs.