STOCKS POWER HIGHER

Stocks marched higher throughout the week, lifted by a succession of positive corporate earnings surprises, optimistic forward guidance by some companies, and healthy economic data. Continued strong third-quarter profits reinforced the narrative that businesses were able to meet strong consumer demand and maintain robust profit margins, despite the headwinds of inflation and supply-chain knots.

Investors were unfazed by the Fed’s mid-week announcement that it would begin its bond purchase tapering plans, in part, because it had long been telegraphed and Fed Chair Powell’s optimistic analysis of the current state of the economy. Also cheered was the announcement of a new COVID-19 antiviral pill and a powerful rebound in job creation, driving stocks to new heights to close out the week. 

THE FED SPEAKS

In an eagerly awaited November meeting of the FOMC (Federal Open Market Committee), the Fed pulled the trigger on its plan to taper monthly bond purchases. Fed tapering will begin this month with reductions of $15 billion per month ($10 billion in Treasuries and $5 billion in mortgage-backed securities) that will end this pandemic-era policy response by July 2022.⁴

The Fed reiterated its belief that inflation remained transitory, though conceding it had underestimated its acceleration and persistence; it did not expect interest rates to be raised until after the completion of the tapering program. Powell expects inflation to stay elevated until mid-2022 when he anticipates supply-chain bottlenecks to clear.^5,6