Weekly Market Commentary January 24th to January 28th 2022
All eyes were focused on the FOMC meeting this week with market participants focused on guidance of a March lift off in short-term rates and the pace of balance sheet roll off from bond purchase tapering. As expected, the Fed kept the Fed Funds target rate unchanged at 0-0.25%, where it has been since March 2020. Asset purchases are scheduled to conclude in March, as previously guided. They reiterated a willingness to raise short-term rates at that time (the first hike since 2018), without making a specific commitment.
A first estimate of Q4 Real GDP was reported at 6.9%, well ahead of consensus estimates. A rise in inventories was a key factor, contributing 4.9% to the economic growth reading. The latest report brings Real GDP growth for calendar year 2021 to an impressive 5.7%, the highest since 1984.
The Personal Consumption Expenditures (PCE) Price Index was higher by 0.4% in December and 5.8% on a year-on-year basis, in line with expectations. Excluding food and energy, the Core reading was higher by a more modest 4.9%.
The latest readings of the Markit PMI Manufacturing and Services Indices pulled back from the previous readings with the Services sector primarily showing a slowdown from weak employment. The spike in virus cases due to the Omicron variant has led to a significant uptick in employee absences. Prices paid was marginally lower providing at least some positive sign that supply chain problems may be easing despite worker shortages.
It was a rocky week for equities from the wild roller coaster swings in the initial trading session to ongoing volatility throughout the week. Fed watching, the risks of a possible military conflict in Eastern Europe and ongoing COVID concerns weighed on investors. A rally in the final trading session of the week shifted indices into the green after three weeks of declines. The S&P 500 closed higher by 0.8% to 4,431. The Nasdaq Composite finished flat within a couple points of where it started at 13,770. The yield on the 10-Year U.S. Treasury closed the final trading session at 1.78%.
Key economic releases next week include the JOLTS jobs report, Nonfarm Payrolls and ISM Manufacturing & Services Indices.