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Equities climbed to new highs this week after the Federal Reserve declined to combat rising inflation. Although the Federal Reserve admitted inflation was taking longer to become transitory, Chairman Jerome Powell said the central bank is committed to long-term inflation and not short-term price fluctuations. The Federal Reserve did announce the tapering of quantitative easing will begin this month though, with the Fed buying $105 billion in treasury and mortgage bonds, down from $120 billion. Barring no changes, the taper will complete in June.

The small-cap Russell 2000 Index advanced 6.09 percent, followed by the Nasdaq up 3.05 percent, the S&P 500 Index 2.00 percent and the Dow Jones Industrial Average 1.42 percent. Gold gained 1.91 percent on the week, with all the gains coming after the Federal Reserve meeting. iShares 20+ Year Treasury (TLT) climbed 1.18 percent.

The October employment report was strong across the board. Wage growth met expectations of 0.4 percent, unemployment was 4.6 percent, slightly better than the consensus forecast. Net new jobs blew away forecasts at 531,000 along with upward revisions of more than 100,000 for the prior two months. Removing the statistical adjustments in the government data, there were actually 1.6 million new jobs. All sectors showed substantial gains, led by restaurants, manufacturing and professional services. The numbers are particularly strong considering vaccine mandates in some industries. Healthcare, for example, lags other sectors with nearly 500,000 fewer jobs than before the pandemic. Warehouse and transportation employment has already exceeded their pre-pandemic levels.

The ISM services PMI hit a new all-time high at 66.7 percent.

The Atlanta Federal Reserve’s GDP Now model upped its fourth quarter growth estimate to 8.5 percent in light of the positive data out this week.

Crude oil declined this week, with West Texas Intermediate crude closing at $81.27 per barrel. This will be an important commodity in the coming weeks because should it resume its ascent, the market could quickly determine the Federal Reserve made a policy error in its dovish tone.

The 10-year treasury bond yield plunged to 1.45 percent on Friday, down from near 1.70 percent a little more than 2 weeks ago.

Tesla (TSLA) lifted the stock market on Monday with an advance 8.56 percent.  The Russell 2000 Index rallied 2.65 percent, while the Nasdaq increased 0.63 percent. The Dow Jones Industrial Average gained 0.26 percent and the S&P 500 Index 0.18 percent.

The Federal Reserve will announce its taper of quantitative easing this week. The market expects a nine-month taper that starts in November and ends in July. Official have said rate hikes could start as early as December 2022. Meeting those expectations would be dovish because the market has been moving their rate hike expectations up.

Central banks in Canada and Australia shocked the market by abruptly ending quantitative easing last month. The 2-year yields in those countries shot higher, while long-term bond yields declined. Speculators have been betting on a hawkish turn at the Federal Reserve in part because other central banks have moved faster. The odds of a June 2022 rate hike are up to 70 percent.

Speculators are taking assets such as Tesla (TSLA), crude oil and Bitcoin to highs. Last week, Tesla’s market capitalization climbed past all the publicly listed automakers combined, despite Tesla selling about 1 percent of automobiles. Berkshire Hathaway’s (BRKB) profit exceeds Tesla’s sales, but Tesla’s market cap is double Berkshire’s. Tesla has gained about 40 percent in the past two weeks.

Crude oil closed Monday at $84.05 per barrel, near its 52-week high, reigniting expectations of $100 oil by the end of the year. The 10-year Treasury yield close at 1.58 percent, up slightly from Friday. The U.S. Dollar Index was down slightly on Monday.

The October ISM manufacturing PMI came in lower than expected as price increases continued to impact the index. Manufacturers are earning good profits from high prices, but higher prices are deterring new orders. China’s PMI also missed because of its energy shortage, along with the supply chain disruptions. The ISM services PMI will be reported on Wednesday.

The Federal Reserve meeting is Wednesday. Federal Reserve Chairman Powell will speak after the meeting.

The October employment report will be out on Friday. Economists are looking for 450,000 new jobs and a drop in the unemployment rate to 4.7 percent. They also see wage growth slowing from September’s 0.6 percent to 0.4 percent.

The heart of earnings season has passed with Big Tech having reported, but this week will see some big names such as Pfizer (PFE), Alibaba (BABA), Square (SQ), Moderna (MRNA), Uber (UBER), Amgen (AMGN), Zillow (Z), Qualcomm (QCOM) and Johnson Controls (JCI).