ECONOMIC REVIEW

  • The ISM Manufacturing Index for the month of December fell to 58.7, lower than the expectation among economists of 60.
  • The ISM Services Index for the month of December decreased more than expected. The index fell to 62 while the expectation was for a decrease to 67.
  • Non-farm payrolls for the month of December missed sharply to the downside, the survey expectation was for the economy to add 450,000 jobs whereas the actual increase was 199,000.

INSIGHT: The first week of the year started off with some disappointments in terms of economic data. The jobs report revealed hiring slowed in the final weeks of 2021 as coronavirus case counts increased to unprecedented levels and fueled new concerns for the still-incomplete recovery. The latest count marks the worst month of job creation since December 2020. Despite the big hiring miss, the unemployment rate fell to 3.9%, reaching below 4% levels for the first time since late 2019 and early 2020. The manufacturing sector continued to expand in December, though at a slower pace, with fifteen of eighteen industries reporting growth. Respondent comments in December continued to be dominated by widespread worries about input availability and labor shortages. The service sector retreated as expected due to the record-setting pace in November, attributable to news about the Omicron variant and its effects on more pandemic-sensitive industries. Most notably, some supply constraints have started to slow; the backlog of orders index fell for the second consecutive month. Lastly, the supplier deliveries index posted its largest monthly decline since 1997, signaling shorter wait times for inputs.

A LOOK FORWARD

  • The Consumer Price Index (CPI) for the month of December will be announced on Wednesday, the expectation is for prices to increase by +0.4% on a month-over-month basis.
  • The Producer Price Index (PPI) for the month of December will announced on Thursday, the survey expectation is for producer prices to increase by +0.4% on a month-over-month basis.
  • Retail sales for the month of December will be announced on Friday, economists’ expectations are for retail sales to decrease by -0.1% on a month-over-month basis.

INSIGHT: Inflation continues to be top of mind for investors as earlier this week the most recent transcript of the Fed’s meeting took a more hawkish turn than expected. Many Fed officials pointed to the possibility of rate hikes occurring as early as March and discussion of letting the balance sheet wind down surprised markets.

Another larger than expected inflation reading may justify the Fed’s new notions. Lastly, retail sales are expected to decrease in a month that is traditionally seasonally strong. A slow in retail spending may point to the effect the Omicron variant has had on the consumer’s psyche.

MARKET UPDATE

Market Index Returns as of 1/7/221WTDQTDYTD1 YR3 YR5 YR
S&P 500-1.83%-1.83%-1.83%24.71%24.57%17.63%
NASDAQ-4.52%-4.52%-4.52%15.04%30.97%23.20%
Dow Jones Industrial Average-0.25%-0.25%-0.25%18.90%18.02%15.21%
Russell Mid-Cap-2.79%-2.79%-2.79%15.79%21.17%14.02%
Russell 2000 (Small Cap)-2.91%-2.91%-2.91%4.99%17.21%11.19%
MSCI EAFE (International)-0.29%-0.29%-0.29%8.64%12.71%9.10%
MSCI Emerging Markets-0.47%-0.47%-0.47%-5.29%10.30%9.30%
Bloomberg Barclays US Agg Bond-1.53%-1.53%-1.53%-2.23%4.19%3.21%
Bloomberg Barclays High Yield Corp.-0.94%-0.94%-0.94%4.11%7.77%5.89%
Bloomberg Barclays Global Agg-1.17%-1.17%-1.17%-5.39%3.02%3.12%

OBSERVATIONS

  • U.S. equities moved lower this week as indicated by the S&P 500 which was down -1.83% on the week.
  • In the U.S., smaller sized companies underperformed their larger-sized counterparts, as the Russell 2000 index decreased by -2.91% on the week.
  • International stocks as measured by the MSCI EAFE were negative on the week, down -0.29%, outperforming domestic stocks.
  • Emerging market stocks were down on the week with the MSCI EM down -0.47%.
  • U.S. investment grade bonds were negative last week with the Bloomberg Barclays U.S. Aggregate Bond index down -1.53%.

BY THE NUMBERS

WORTH MANY TRILLIONS – The US stock market grew by $12 trillion in calendar year 2021, from $41 trillion as of 12/31/2020 to $53 trillion as of 12/31/2021. 10 years ago (12/31/2011), the US stock market was worth just

$16 trillion (source: Siblis Research).

PROTECTING THE DOWNSIDE – There were more put option contracts outstanding (more than 200 million) at the end of 2021 on US individual stocks, ETFs (exchange-traded funds) and stock indices than at any time in history based on records maintained since 2009 (source: CBOE Global Markets).

HAS NEVER BEEN LOWER – 5 states (Georgia, Nebraska, Oklahoma, Utah, and West Virginia) recorded their lowest unemployment rates ever in November 2021. State jobless rates have been tracked nationwide since 1976 (source: Bureau of Labor Statistics).

WHO WINS? – It’s Alabama vs. Georgia in college football’s national championship game tonight (1/10/2022). An Alabama victory would give Nick Saban his 8th national title as a head coach. His 7 current titles (6 with Alabama and 1 with LSU) is the most in college football history (source: NCAA).

Reprinted with permission from BTN. Copyright © 2021 Michael A. Higley.