Good Life Advisors – Talking Points – Week 10

US equities were lower this week, with the S&P 500 and Nasdaq down for a second straight week, while the Dow was down for the fifth-straight week, the longest since May 2019. Growth was an underperformer to value this week though sectors were fairly mixed. Consumer staples was the worst performer with grocers, food among worst performers amid some worries about margin pressures. Tech and communication services were weaker with semis, hardware, and streaming among the weakest performers. Healthcare in line with the tape as hospital and pharma offset weakness across biotech and life sciences. Consumer discretionary ahead with Amazon a big tailwind, while hotels, cruise lines, dollar stores, and housing retailers were better. Industrials helped by machinery and construction and engineering, while transports were weaker despite easing fuel prices and A&D gave back some of their recent geopolitical-driven gains. Banks were broadly weaker in financials despite the backup in yields, though fund managers, online brokers, and pockets of insurance were better. The week’s commodity rally helped materials, with precious metals miners, ag chemicals, and commodity chemical names higher. Energy was the standout and the only sector higher this week despite weaker crude. Treasuries saw a big backup in yields, with the 10Y yield back above 2%, while the 2Y/10Y spread narrowed to the lowest since the Mar-20 beginning of the pandemic. Gold finished the week up 0.9%, off best levels after crossing $2000/oz earlier this week. Bitcoin futures were down 2%. WTI crude ended the week down 5.5% after last week’s 26% gain. 

Geopolitics remained the big story for the week. While there was little progress at Thursday’s meeting between the top Ukrainian and Russian diplomats, there was still a bit of optimism for a diplomatic solution. However, the market path of least resistance remains to the downside given inflation concerns, the tightest global financial conditions in three years, and expectations for worsening earnings revisions. Strategists have also argued that there hasn’t been enough capitulation, with Goldman Sachs noting equity allocations are still higher than the tech bubble peak. However, some tailwinds remain in focus. JPMorgan analysts noted this week that the seven-day stretch of active de-grossing was bigger than the Mar-20 Covid peak or the Jan-21 meme squeeze. Real yields also fell back to -100bp, while buyback authorizations have continued to outpace last year’s record $1.2T.

Inflation hits another near-40 year high ahead of next week’s FOMC meeting: The February CPI report showed headline CPI up 0.8% m/m, higher than consensus for a 0.7% gain and up from January’s 0.6% gain, while annualized CPI of 7.9% was the fastest pace since 1982. Despite the hotter inflation print, the Fed is still expected to raise rates by 25 bp at next week’s FOMC meeting. While markets have pushed the odds of a 50 bp hike to near zero for March, some economists said they could see an outsized hike at some point this year if inflation readings remain hot. Any commentary around the balance sheet will also be in focus, though the Street doesn’t expect a formal announcement until May. Some economist previews also showed expectations for the median fed funds rate dot on the updated Summary of Economic Projections to rise to five hikes this year from the three forecasts in December.

Oil hits highest level since 2008 but still finishes week lower. WTI crude hit a peak of $130 on Monday, the highest since 2008, amid peak fears around the Russian invasion of Ukraine. However, demand destruction fears remain an overhang, which were further elevated by yesterday’s February CPI report. Prices also came off on optimism around supply easing from Venezuela, Iran, and UAE, though Iran nuclear deal negotiations were paused on Friday, while UAE played down an OPEC supply boost. Talks with the Venezuelan government of Nicolas Maduro were also criticized by members of both parties, though Reuters noted that Venezuela’s output could rise by at least 400K bpd if the US authorizes the trade of Venezuelan crude. However, analysts continued to point out that even with some new sources of supply, it would be difficult to offset the gap of Russia oil exports, which total 4.4M bpd.

Gasoline is almost back to 2008 prices.

Goldman Sachs this week raised the US recession risk as high as 35% and cut GDP growth, citing soaring oil prices and other fallout from the Russian invasion of Ukraine. The team forecast a 0.7% drag on real disposable incomes from crude oil and agricultural commodity forecasts, which will weigh on consumer spending. That dynamic was reflected by this week’s March preliminary Michigan Consumer Sentiment report, which fell to the lowest level since 2011 with respondents seeing the highest year-ahead inflation rate since 1981 and the proportion of respondents expecting personal finances to worsen in the coming years the highest since surveys started in the mid-1940s. However, some sell-side economists said the impact on US consumers is likely to be padded by high savings rates coming out of the pandemic.

 Little progress in resolving Ukraine and Russia conflict this week. Headlines out of Ukraine were mixed this week. There was some optimism on Friday after Russia’s Putin said that he sees “certain positive shifts” in Ukraine talks, while Israel PM Bennett remains an active mediator between both sides. The US also rejected a request to turn over Russian-made MIG fighters to ultimately be sent to Ukraine, which was seen as a move to prevent a further escalation. Chinese Premier Li also called the Ukraine situation “disconcerting” and urged a ceasefire, though did not comment on whether China would provide economic or financial support for Russia while Beijing has described sanctions imposed by Western countries as illegal. President Biden said Friday the US would join the EU in stripping Russia of permanent normal trade relations.


Fixed Income


January FOMC Statement        Credit, Liquidity and Balance Sheet     Federal Reserve Dot Plots Dec 21′

US Corporate Debt Tops 7 Trillion. yields    FOMC Policy Normalization Statement     Longer Run Goals August 2020


Global Bond Yields


Foreign Exchange Market


Energy Complex

The Baker Hughes rig count gained 13 this week. There are 663 oil and gas rigs operating in the US – Up 261 over last year.


Metals Complex


Employment Picture 

Weekly Unemployment Claims – Released Thursday 3/10/2022 – The week ending March 5th observed an increase of 11k in initial claims currently at 227k. The four-week moving average of initial jobless claims increased 500 to 231.25k.

Job Openings & Labor Turnover Survey JOLTS – Released 3/9/2022 – The U.S. Bureau of Labor Statistics reported the number and rate of job openings was little changed at 11.3 million on the last business day of January. Over the month, hires were little changed at 6.5 million and separations were little changed at 6.1 million.  Within separations, the quits rate decreased to 2.8%. The layoffs and discharges rates were little changed at 0.9%.

February Jobs Report BLS Summary Released 3/4/2022 – The US Economy added 678k nonfarm jobs in February and the Unemployment rate declined to 3.8%. Average hourly earnings were little changed at $31.58.  Hiring highlights include +151k Leisure and Hospitality, +86k Professional and Business Services, and +61k Retail Trade.

  • Average hourly earnings were little changed at $31.58.
  • U3 unemployment rate declined 0.2% to 3.8%. U6 unemployment rate increased 7.2%.
  • The labor force participation rate increased to 62.3%.
  • Average work week rose 0.1 hour to 34.7 hours.

Employment Cost Index – Released 1/28/2022 – Compensation costs for civilian workers increased 1.0% for the 3-month period ending in December 2021. The 12-month period ending in December 2021 saw compensation costs increase by 4.0%. The 12-month period ending December 2020 increased 2.5%. Wages and salaries increased 4.5 percent over the year and increased 2.6 percent for the 12-month period ending in December 2020. Benefit costs increased 2.8 percent over the year and increased 2.3 percent for the 12-month period ending in December 2020. This report is published quarterly.


This Week’s Economic Data

Links take you to the data source 

Consumer Price Index – Released 3/10/2022 – Consumer prices rose 0.8% m/m in February following a 0.6% gain in January. Consumer prices are up 7.9% for the 12-month period ending in February. Core consumer prices increased 0.5% m/m in February following a 0.6% gain in January.

U.S. Trade Balance – Released 3/8/2022 –  According to the U.S. Census Bureau of Economic Analysis the goods and services deficit increased in January by $7.7 billion to $89.7 billion. January exports were $224.4 billion, $3.9 billion less than December exports. January imports were $314.1 billion, $3.8 billion more than December imports. Year-over-year, the goods and services deficit increased $24.6 billion, or 37.7 percent, from January 2021. Exports increased $29.9 billion or 15.4 percent. Imports increased $54.4 billion or 21.0 percent.

Consumer Credit  Released 3/7/2022 – Consumer credit increased at a seasonally adjusted annual rate of 1.9 percent in January. Revolving credit decreased at an annual rate of 0.3 percent, while nonrevolving credit increased at an annual rate of 2.5 percent.


Recent Economic Data

Links take you to the data source 

PMI Non-Manufacturing Index  Released 3/3/2022 – Economic activity in the non-manufacturing sector grew in January for the 21st consecutive month. ISM Non-Manufacturing registered 56.5 percent, which is 3.4 percentage points below the adjusted January reading of 59.9 percent.

PMI Manufacturing Index – Released 3/1/2022 – February PMI increased 1.0% to 58.6% up from January’s reading of 57.6%. The New Orders Index was 61.7% up 3.8% from January’s reading of 57.9%. The Production Index registered 58.5%, up 0.7%.

U.S. Construction Spending  Released 3/1/2022 – Construction spending increased 1.3% in January measuring at a seasonally adjusted annual rate of $1,677.2 billion. The January figure is 8.2% above the January 2021 estimate. Private construction spending was 1.5% above the revised December estimate at $1,326.5 billion. Public construction spending was 0.6% above the revised December estimate at $350.7 billion. 

Chicago PMI  Released 2/28/2021  Chicago PMI declined by 8.9 points in February to 56.3. This decline marks the first decline since November 2021. All five of the main five indicators fell, with New Orders and Supplier Deliveries taking the largest hit. Only Inventories edged up over the month. 

US Light Vehicle Sales – Released 2/25/2022 – U.S. light vehicle sales were at a seasonally adjusted annual rate (SAAR) of 15.018 million units in January. 

Personal Income – Released 2/25/2022 – Personal income increased $9.0 billion or 0.1 percent in January according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $19.8 billion or 0.1 percent and personal consumption expenditures (PCE) increased $337.2 billion or 2.1 percent.

Durable Goods – Released 2/25/2022 – New orders for manufactured durable goods in January increased $4.3 billion or 1.6% to $277.5 billion. Transportation equipment led the increase rising $3.3 billion or 3.4% to $87.6 billion.   

Second Estimate of 4th Quarter 2021 GDP – Released 2/24/2022 – Real gross domestic product (GDP) increased at an annual rate of 7.0 percent in the fourth quarter of 2021, according to the second estimate released by the Bureau of Economic Analysis. GDP increased 2.3 percent in the third quarter of 2021.  The second estimate is based on source data that are more complete than that of the advance estimate. The increase in real GDP primarily reflected increases in private inventory investment, exports, personal consumption expenditures (PCE), and nonresidential fixed investment that were partly offset by decreases in both federal and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased. The updated estimates primarily reflected upward revisions to nonresidential fixed investment, state and local government spending, and residential fixed investment that were partly offset by downward revisions to personal consumption expenditures (PCE) and exports. 

New Residential Sales – Released 2/24/2022 – Sales of new single-family homes decreased 4.5% to 801k, seasonally adjusted, in January. The median sales price of new homes sold in January was $423,300 with an average sales price of $496,900. At the end of January, the seasonally adjusted estimate of new homes for sale was 406k. This represents a supply of 6.1 months at the current sales rate.

Consumer Confidence  Released 2/22/2022  The Consumer confidence index decreased in February following a decrease in January. The Index now stands at 110.5, down from 111.1 in January. 

Existing Home Sales – Released 2/18/2022 – Existing home sales increased in January following a decline in December. Sales increased 6.7% to a seasonally adjusted rate of 6.50 million in January. Sales decreased 2.3% year-over-year. Housing inventory sits at 860k units. Down 2.3% from December’s inventory. Down 16.5% over last year. Unsold inventory sits at a 1.7-month supply. The median existing home price for all housing types was $350,300 which is up 15.4% from January 2021. This marks 119 consecutive months of year-over-year increases, the longest-running streak on record. 

Housing Starts  Released 2/17/2022 – New home starts in January were at a seasonally adjusted annual rate of 1.638 million; down 4.1% below December, and 0.8% above last January’s rate. Building Permits were at a seasonally adjusted annual rate of 1.899 million, up 0.7% compared to December, and up 0.8% over last year.

Industrial Production and Capacity Utilization – Released 2/16/2022 – In January Industrial production increased 1.4%. Manufacturing increased 0.2%. Utilities output increased 9.9%. Mining output increased 1.0%. Total industrial production was 4.1% higher in January than a year ago.  Total capacity utilization increased 1.0% to 77.6% in January which is 1.9% below its long run average. 

Retail Sales – Released 2/16/2022 – U.S. retail sales for January increased 3.8% to $649.8 billion and retail sales are 13.0% above January 2021.  U.S. retail sales for the November 2021 through January 2022 period were up 16.1% from the same period a year ago.

Producer Price Index  Released 2/15/2022 – The Producer Price Index for final demand increased 1.0% in January. PPI less food and energy increased 0.8%. The change in PPI for final demand has increased 9.7% year/y.


Next week we get data on PPI, Retail Sales, Industrial Production and Capacity Utilization, Housing Starts, and Existing Home Sales.


Data Sources:

Bureau of Economic Analysis (BEA)
Congressional Budget Office (CBO)
U.S. Bureau of Labor Statistics (BLS)
Federal Reserve Economic Data (FRED Charts)

CME Fed Watch
U.S. Treasury – Yields
U.S. Census Bureau
Institute for Supply Management (ISM)
Weekly DOL Employment Data
BLS Monthly Jobs Report

US Energy Admin (EIA)
BLS Consumer Price Index CPI
BLS Producer Price Index PPI
Atlanta Fed GDPNOW
NY Fed Nowcast GDP
US Census Bureau Housing Starts

Consumer Credit
USCB Retail Sales
Construction Spending
Federal Reserve Dot Plots
NY Empire Index
Philadelphia Federal Reserve
P/E Ratio Data -Yardeni Research

Technical Analysis Info: – Financial Charts
Exponential vs Simple moving average

Other Links:

1973 Arab Oil Embargo
Hunt Brothers Silver
Long-Term Capital bailout