Market & Economic Commentary

Market Commentary For the week of January 17, 2022

ECONOMIC REVIEW

  • The Consumer Price Index (CPI) for the month of December increased at a month-over-month rate of 0.5%, above the expectation of a 0.4% increase
  • The Producer Price Index (PPI) for the month of December increased by 0.2%, below the consensus expectation increase of 0.4%.
  • Retail sales for the month of December came in sharply below expectations, decreasing by -1.9% compared with expectations of a -0.1% decline.

INSIGHT: Data surrounding inflation was mixed for the month of December. Consumer prices increased more rapidly than prices for producers. Consumer prices continued their rapid ascent, pushing the 12-month increase for the year of 2021 to 7.0%, the highest rate in nearly 40 years. Consumer price increases for December were broad based as shelter, food, and new and used vehicles all added to overall increases. Comparatively, producer prices rose much more moderately, marking the smallest increase in nearly a year. Services were the largest contributor to gains but were mainly offset by a drop in goods prices. This drop in goods prices was the first monthly decline since 2020. Retail sales moved sharply to the downside, and though the miss was not surprising, the magnitude was. The miss can be attributed to consumers pulling their Christmas shopping forward as fear of shortages and supply issues loomed. On a brighter note, retail sales for the fourth quarter were up 2.1% compared to the third quarter and up 17.1% compared to last year.

A LOOK FORWARD

  • Housing starts for the month of December will be released on Wednesday; the expectation is for starts to decrease by -1.7% on a month-over-month basis.
  • Existing home sales for the month of December will be announced on Thursday, the expectation is for home sales to decrease by -0.6% on a month-over-month basis.

INSIGHT: While housing starts are expected to decline this month, November starts accelerated well beyond expectations at a rate of 11.8%, faster also than the previous month’s revised 8.3%, reversing a two-month down trend. The expected drop following November’s surge appears in line with the volatility in the measure witnessed over 2021. The strong print last month belies a familiar headwind affecting many sectors of the economy currently: supply chain disruptions. Builders are struggling with both shortages and rising prices for materials, labor, and land, which have extended construction times across the industry. Some larger firms in the space have tempered expectations for deliveries in Q4 2021 accordingly, as well as guided down for the first quarter of this year. Despite these ongoing challenges, strong demand persists, particularly for single-family homes. While starts for the category dipped slightly from this time a year ago, the total number of single-family dwellings under construction jumped 28.3% YoY. Additionally, new home permits, a forward-looking gauge of planned construction, was up 3.6% in November over previous month’s revised figure and 0.9% from a year prior. Demand remains robust and “single-family completions will increase in 2022, bringing more inventory to market despite a 19% year-over-year rise in construction material costs and longer construction times,” said Robert Dietz, chief economist for the National Association of Home Builders.

MARKET UPDATE

Market Index Returns as of 1/14/221WTDQTDYTD1 YR3 YR5 YR
S&P 500-0.29%-2.11%-2.11%24.59%23.90%17.58%
NASDAQ-0.28%-4.79%-4.79%14.32%30.32%22.89%
Dow Jones Industrial Average-0.88%-1.13%-1.13%18.03%17.04%15.10%
Russell Mid-Cap-0.77%-3.54%-3.54%13.72%19.98%13.83%
Russell 2000 (Small Cap)-0.79%-3.67%-3.67%1.33%16.15%10.94%
MSCI EAFE (International)0.18%-0.11%-0.11%8.01%12.20%8.96%
MSCI Emerging Markets2.57%2.09%2.09%-6.29%10.68%9.49%
Bloomberg Barclays US Agg Bond-0.29%-1.82%-1.82%-2.47%4.11%3.11%
Bloomberg Barclays High Yield Corp.0.07%-0.87%-0.87%4.04%7.45%5.87%
Bloomberg Barclays Global Agg0.43%-0.75%-0.75%-4.79%3.12%3.11%

OBSERVATIONS

  • U.S. equities moved lower this week as indicated by the S&P 500 which was down -0.29% on the week.
  • In the U.S., smaller sized companies underperformed their larger-sized counterparts, as the Russell 2000 index decreased by -0.79% on the week.
  • International stocks as measured by the MSCI EAFE were positive on the week, up 0.18%, outperforming domestic stocks.
  • Emerging market stocks were up on the week with the MSCI EM increasing +2.57%.
  • U.S. investment grade bonds were negative last week with the Bloomberg Barclays U.S. Aggregate Bond index down -0.29%.

BY THE NUMBERS

INVEST FOR THREE YEARS – Since 1926, 84% of the rolling 3-year periods for the S&P 500 index (i.e., the 94 separate 3-years beginning 1926-28, then 1927-29, . . . 2019-21) have produced a positive return. The S&P 500 consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market value weighted index with each stock’s weight in the index proportionate to its market value (source: BTN Research).

YOU’RE HIRED – US employers added 6.45 million new jobs in 2021, an average gain of 537,000 new jobs created each month. The smallest monthly jobs gains took place in December 2021 when just 199,000 new jobs were reported. By year-end 2021, 149.0 million Americans had full-time jobs (source: Department of Labor).

POWER TO THE WORKER – Average hourly earnings of employees in the private sector rose by +4.7% in 2021, on top of a +5.5% gain in 2020. This advancement of wages during a nationwide pandemic, a 2-year average wage gain of +5.1% per year, was double the +2.5% annual gain in average hourly earnings over the preceding 13 years, i.e., 2007-2019 (source: Department of Labor).

THEY OWN IT NOW – Banks foreclosed on just 25,662 homes nationwide in 2021, down 49% from 50,238 foreclosures in 2020 and down 82% from 143,955 foreclosures in 2019. The worst single year of foreclosures in US history was 1,050,500 foreclosures in calendar year 2010 (source: ATTOM Data Solutions).

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

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