December 17, 2021

Weekly Market Commentary December 13th to December 17th 2021

The much-anticipated Federal Reserve meeting occurred on Tuesday and Wednesday, where chairman Jay Powell announced that the Fed Funds Rate will remain unchanged at 0.00%-0.25% while the FOMC will speed up their tapering efforts, which are now expected to end by April of 2022. Although none of these dynamics were particularly surprising to market participants, the move allows the Federal Reserve to be more aggressive next year and for a potential liftoff on rates in April. The Fed’s statement that they are prepared to raise rates “at least three times next year” to fight inflation was the most hawkish piece of the report.

Producer Price Inflation was the final piece of inflationary data the Fed digested before making their announcement. Prices in November continued to run hotter than expected increasing 0.8% (vs 0.6% expected) and marked an acceleration from October and the fastest annual pace in nearly 40 years. Final demand goods was the largest contributor to PPI as iron and steel prices rose 10.7% for the month. There are some encouraging signs of supply chain pressures easing as supplier delivery times and order backlogs both improved during the month, but overall pressures remain.

Retail Sales came in well below expectations at 0.3% (vs 0.8% expected), which was disappointing coming off a strong October number. Lower than expected spending at department stores and electronic devices suggest holiday shopping for the month was light. An increase at restaurants and spending on food and beverages offset the slack in those categories.

Housing numbers were a bright spot for the economy. Total Housing Starts rebounded 11.8% in November to a 1.67 million annualized pace (1.56 million expected) following two monthly declines. Overall, limited housing inventory and a steady rise in new home sales should keep homebuilder confidence elevated although supply shortages will persist.

It was a volatile week for equity markets. All three major indices were lower for the week with the Nasdaq leading the decline. The tech heavy index fell -2.9% finishing the week at 15,169 while the S&P 500 fell nearly -2% closing at 4,620. The Dow Jones Industrial Average fell -1.6% to 35,365 but fared better than its peers during the risk-off environment. In the fixed income markets, the yield curve flattened slightly as the ten-year treasury fell from 1.48% to 1.41%.

Next week’s economic releases include the third reading of 3rd quarter GDP, Personal Consumption Expenditures and Existing Home Sales.