As of end of October 2021, the number of S&P 500 index companies beating earnings per share estimates for the third quarter remain above average. Due to these positive reports, the index is markedly higher than in prior quarters.
While major indexes seem vulnerable to volatility from commodity price increases (notably from oil), there has been no noticeable weakness in leading economic indicators. Important household fundamentals are strong, the cost and accessibility to credit remain supportive.
Consumer prices are increasing, but the US Federal Reserve, the Bank of Canada and industry economists believe these increases are temporary. They believe that inflation is a very short-term aberration attributable to supply chain disruptions and challenges in finding suitable workers.
Interest rates are the fundamental swing. The US Federal Reserve and the Bank of Canada have made it clear that they are not planning to raise benchmark interest rates anytime soon. The US Federal Reserve has decided to slowly taper their bond-buying program. Within the fixed income market, Central banks are delaying any increase in short-term rates.
Based on the above, we see no clear sign that our valuation models need adjusting.