Buy The Dip Still Working
The S&P 500 made its 65th 2021 all-time closing high on Friday jumping 3.85%. There were several factors behind the big bounce this week. The most powerful seemed to be initial data that suggested Omicron is milder than other variants and that the three doses of the Pfizer/BioNTech vaccine can neutralize Omicron. The positive news on the vaccine front followed more discussion about how the Omicron variant may have picked up a snippet of the common cold virus, meaning it transmits more easily while only causing mild or asymptomatic disease. In addition, initial data from the Omicron epicenter in South Africa showed patients need less medical intervention. The CDC said on Friday that the first Omicron cases in the US mostly resulted in mild illness. Omicron worries were also behind a spike in US vaccine demand.
New unemployment claims were newsworthy this week – coming in at just 184k- The one-week number hasn’t been that low since 1969. The four-week moving average is sitting at 218,750.
Inflation remained elevated in November, but largely in line with expectations:
The recent Fed pivot seemed to dampen some of the angst heading into the widely anticipated November inflation data on Friday. President Biden on Thursday also conceded that while energy and goods prices have started to decline, that dynamic would not be reflected in the November data. In addition, the print was largely in with expectations.
Headline CPI increased 0.8% m/m, pushing the y/y rate of growth up to 6.8% from 6.2%, the highest since 1982. Core CPI increased 0.5%, pushing the y/y rate of growth to 4.9% from 4.6%, the highest since 1991. In line with preview commentary, price pressures were fairly broad based, fitting with the widely discussed combination of robust demand and supply chain constraints. As expected, used and new vehicle prices continued to see outsized increases. Apparel and household furnishings were strong as well. In addition, travel metrics reflected the latest bout of reopening momentum.
US equities finished sharply higher this week. Growth outperformed value 4.39% vs 2.88%, while tech was the real winner jumping 6% on the week. Consumer staples gained just over 3.5% with help from discount retailers, drug stores and select beverage names. Materials had a big week with good gains in industrial metals, global miners and select chemicals. Energy gained more than 3.5% as oil snapped a six-week losing streak. Healthcare was up over 3% with managed care the best performer, while pharma was mixed and biotech lagged. Treasuries were weaker across the curve though 10-year yields held below 1.50%. The dollar index was little changed. Gold was slightly higher. WTI crude gained 8.2%, its biggest increase since August.
The Fed is widely expected to accelerate its taper at Wednesday’s FOMC meeting, just over a month after it unveiled its initial plans. The Street is looking for the Fed to reduce asset purchases by $30B a month ($20B Treasuries/$10B MBS), double the pace it announced at the last meeting. This would bring the end of the taper forward to March from June. When it comes to the dot plot, the median trajectory seems to be for two rate hikes in 2022 and three in both 2023 and 2024. However, there has been some discussion about the risk that expectations for 2022 could ramp to three hikes. Fed Chair Powell is expected to reiterate that tapering is not tightening. In addition, while he may point out that the faster taper gives the central bank more flexibility on liftoff, he is not expected to get into any specifics on timing given the latest ramp in virus uncertainty with the Omicron variant. Along with the faster taper, the other big change in the FOMC statement is expected to revolve around the acknowledgement inflation is no longer transitory.
September FOMC Statement Credit, Liquidity and Balance Sheet Federal Reserve Dot Plots Sep 21′ US Corporate Debt Tops 7 Trillion. Treasury.gov yields FOMC Policy Normalization Statement Longer Run Goals August 2020
Global Bond Yields
Foreign Exchange Market
The Baker Hughes rig count gained 7 this week. There are 576 oil and gas rigs operating in the US – Up 238 over last year.
Weekly Unemployment Claims – Released Thursday 12/9/2021 – The week ending December 4th experienced a decrease of 43k in initial claims currently at 184k. The four-week moving average of initial jobless claims decreased 21.25k to 218.75k.
Job Openings & Labor Turnover Survey JOLTS – Released 12/8/2021 – The U.S. Bureau of Labor Statistics reported the number and rate of job openings increased to 11.0 million on the last business day of October. Over the month, hires were little changed at 6.5 million and separations declined to 5.9 million. Within separations, the quits rate decreased to 2.8%. The layoffs and discharges rates were unchanged at 0.9%.
November Jobs Report – BLS Summary Released 12/3/2021 – The US Economy added 210k nonfarm jobs in November and the Unemployment rate edged down to 4.2%. Average hourly earnings increased by 8 cents to $31.03. Hiring highlights include +90k Professional and Business Services, +50k Transportation and Warehousing, and +31 in Manufacturing.
- Average hourly earnings increased by 8 cents to $31.03.
- U3 unemployment rate declined 0.4% to 4.2%. U6 unemployment rate declined to 7.8%.
- The labor force participation rate increased to 61.8%.
- Average work week increased 0.1 hours to 34.8 hours.
Employment Cost Index – Released 10/29/2021 – Compensation costs for civilian workers increased 1.3% for the 3-month period ending in September 2021. The 12-month period ending in September 2021 saw compensation costs increase by 3.7%. The 12-month period ending September 2020 increased 2.4%. Wages and salaries increased 4.2 percent over the year and increased 2.5 percent for the 12-month period ending in September 2020. Benefit costs increased 2.5 percent over the year and increased 2.3 percent for the 12-month period ending in September 2020. This report is published quarterly.
This Week’s Economic Data
Links take you to the data source
Consumer Price Index – Released 12/10/2021 – Consumer prices rose 0.8% m/m in November following a 0.9% gain in October. Consumer prices are up 6.8% for the 12-month period ending in November marking the largest 12-month increase since the period ending June 1982. Core consumer prices increased 0.5% m/m in November following a 0.6% gain in October.
Consumer Credit – Released 12/7/2021 – Consumer credit increased at a seasonally adjusted annual rate of 4.6 percent in October. Revolving credit increased at an annual rate of 7.8 percent, while nonrevolving credit increased at an annual rate of 3.7 percent.
U.S. Trade Balance – Released 12/7/2021 – According to the U.S. Census Bureau of Economic Analysis the goods and services deficit decreased in October by $14.3 billion to $67.1 billion. October exports were $223.6 billion, $16.8 billion more than September exports. October imports were $290.7 billion, $2.5 billion more than September imports. Year to date the goods and services deficit increased $161.7 billion or 29.7%, from the same period in 2020. Year to date exports and imports increased $315.1 billion or 17.9% and increased $476.8 billion or 20.7% respectively.
Recent Economic Data
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US Light Vehicle Sales – Released 12/3/2021 – U.S. light vehicle sales were at a seasonally adjusted annual rate (SAAR) of 12.864 million units in November.
PMI Non-Manufacturing Index – Released 12/3/2021 – Economic activity in the non-manufacturing sector grew in November for the 18th consecutive month. ISM Non-Manufacturing registered 69.1 percent, which is 2.4 percentage points above the adjusted October reading of 66.7 percent.
PMI Manufacturing Index – Released 12/1/2021 – October PMI increased 0.3% to 61.1% up from October’s reading of 60.8%. The New Orders Index was 61.5% up 1.7% from October’s reading of 59.8%. The Production Index registered 61.5%, up 2.2%.
U.S. Construction Spending – Released 12/1/2021 – Construction spending increased 0.2% in October measuring at a seasonally adjusted annual rate of $1,598 billion. The October figure is 8.6% above the October 2020 estimate. Private construction spending was 0.2% below the revised September estimate at $1,245 billion. Public construction spending was 1.8% above the revised September estimate at $353 billion.
Chicago PMI – Released 11/30/2021 – Chicago PMI declined to 61.8 points in November. A slowdown in new orders has resulted in the lowest level since February. Among the five main indicators, Inventories saw the largest increase, followed by Production. All other indicators dropped compared to October, with Order Backlogs seeing the largest decline.
Consumer Confidence – Released 11/30/2021 – The Consumer confidence index decreased in November. The Index now stands at 109.5, down from 111.6 in October.
Personal Income – Released 11/24/2021 – Personal income increased $93.4 billion or 0.5 percent in October according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $63.0 billion or 0.3 percent and personal consumption expenditures (PCE) increased $214.3 billion or 1.3 percent.
Second Estimate of 3rd Quarter 2021 GDP – Released 11/24/2021 – Real gross domestic product (GDP) increased at an annual rate of 2.1 percent in the third quarter of 2021, according to the second estimate released by the Bureau of Economic Analysis. The second estimate is based on source data that are more complete than the data available for the advance estimate. Real GDP increased 2.0% in the advance estimate. The increase in real GDP in the third quarter reflected increases in private inventory investment, personal consumption expenditures (PCE), state and local government spending, and nonresidential fixed investment that were partly offset by decreases in residential fixed investment, federal government spending, and exports. Imports, which are a subtraction in the calculation of GDP, increased. The second estimate primarily reflects upward revisions to personal consumption expenditures (PCE) and private inventory investment.
Durable Goods – Released 11/24/2021 – New orders for manufactured durable goods in October decreased $1.2 billion or 0.5% to $260.1 billion. Transportation equipment led the decrease falling $2.0 billion or 2.6% to $75.3 billion.
New Residential Sales – Released 11/24/2021 – Sales of new single-family homes increased 0.4% to 745k, seasonally adjusted, in October. The median sales price of new homes sold in October was $407,700 with an average sales price of $477,800. At the end of October, the seasonally adjusted estimate of new homes for sale was 389k. This represents a supply of 6.3 months at the current sales rate.
Existing Home Sales – Released 11/22/2021 – Existing home sales increased in October. Sales rose 0.8% to a seasonally adjusted rate of 6.34 million in October. Sales are currently down 5.8% from one year ago. Housing inventory sits at 1.25 million units. Down 0.8% from September’s inventory. Down 12.0% over last year. Unsold inventory sits at a 2.4-month supply. The median existing home price for all housing types was $353,900.
Housing Starts – Released 11/17/2021 – New home starts in October were at a seasonally adjusted annual rate of 1.520 million; down 0.7% below September, but 0.4% above last October’s rate. Building Permits were at a seasonally adjusted annual rate of 1.650 million, up 4.0% compared to September, and up 3.4% over last year.
Industrial Production and Capacity Utilization – Released 11/16/2021 – In October Industrial production increased 1.6%. Manufacturing increased 1.2%. Utilities output increased 1.2%. Mining output increased 4.1%. Total industrial production was 5.1% higher in October than a year ago. Total capacity utilization increased 1.2% to 76.4% in October which is 3.2% below its long run average.
Retail Sales – Released 11/16/2021 – U.S. retail sales for October increased 1.7% to $638.2 billion and retail sales are 16.3% above October 2020. U.S. retail sales for the August 2021 through October 2021 period were up 15.4% from the same period a year ago.
Producer Price Index – Released 11/9/2021 – The Producer Price Index for final demand increased 0.6% in October. PPI less food and energy increased 0.5% in October. The change in PPI for final demand has increased 8.6% year/y.
Next week we get data on the PPI, Retail Sales, Industrial Production and Capacity Utilization, and Housing Starts.