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The state of markets: October 2021

2021-10-21, Michael Thompson

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The state of markets: October 2021

After seven positive months, both the US and international (ex US) stock markets lost value in September. Major concerns cited by investors included the COVID-19 spike, Evergrande crises, high inflation and a potential speed-up in Fed tapering. Chinese tech stocks were particularly hard hit as the government enacted stringent regulations.

Gold and bitcoin lost value relative to the US dollar as well. Overall, September was the worst month for most investors since March 2020. The small circle of winners included oil and commodity investments.

The news above, while disconcerting, is probably no reason to change your investments. Bad months can and should occur intermittently. The best investors sustain periods of loss and volatility without panic. Below are projections and macro behaviors that may impact markets going forward.


Most estimates of 2021 US GDP growth have been downgraded from over 7% to around 6%. Cited reasons include supply constraints, COVID-19 resurgence and surprisingly low vaccination rates.

Euro area estimates have held their ground around 5%, while China remains at 8.5%. This includes a high risk of further lockdowns in China due to COVID outbreaks and a relatively less effective vaccine.


Shortages in goods, services and labor are proving more difficult to fix than initially expected. If not problematic itself, this increases fear of inflation among consumers. Many experts are now expecting core CPI to exceed 3% through the first quarter of 2022. It’s very possible the Fed will begin reducing the rate of asset purchases sooner than expected, potentially in November, according to recent reports.

Check out this memo from Hard Marks on why inflation forecasts may not be useful to guide investment decisions.


The SEC approved a bitcoin futures ETF which hit the market on October 19. Bitcoin price has climbed about 30% this month, possibly spurred by this development. Some insiders predict 80-100k USD per Bitcoin prices by the end of the year. Of course, bitcoin (including the new ETF) is highly speculative. Check out our thoughts on bitcoin, including a list of pros and cons.

Equity Outlooks

Ten year outlooks for equity returns have changed little in the last several months. Nominal annual return projections for US equities remain below 5%, and around 7% for ex-US equities. A recent change is that more experts are predicting negative returns for large US growth stocks over the coming decade. For example, see this article about Bank of America’s S&P 500 projections.

Bond Outlooks

Experts expect 1.5 to 2% nominal annual returns for the aggregate US and international bond markets over the next decade, with slightly less from treasuries. This means bondholders are expected to lose purchasing power over the next decade, as inflation estimates are slightly higher than 1.5-2%. Nevertheless, bonds can still play a useful role in reducing the volatility of a portfolio.

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