Earnings growth wrestles inflation for control of market narrative

Rising prices and higher-than-expected earnings shaped investor sentiment during the third week of October. Most of the companies reporting their 3Q21 numbers surpassed expectations. But their reports and forecasts were qualified by the shortages, input cost increases and supply chain issues they are facing.

Investors responded by pouring nearly $25 billion into EPFR-tracked Equity Funds, with 10 of the 11 major Sector Fund groups recording inflows for the week, and by stepping up their search for inflation protection. Bank Loan and Inflation Protection Funds took in over $1 billion apiece, and Cryptocurrency Funds extended their current inflow streak.

Graph depicting the 'Cumulative flows, as percentage of Assets under management, for major money market fund groups, from 2016 to date'.

Graph depicting 'Change, in basis points for GEM equity fund allocations to major markets, 2021 to date'.

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Investors were expecting quarter-point interest rate hikes from the US Federal Reserve and European Central Bank (ECB) in early May. They got them, along with the collapse of another American regional bank, a warning from Treasury Secretary Janet Yellen that the US may not be able to pay its bills in June if the debt ceiling standoff persists and more violent protests against pension reform in France.

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