February 5, 2022

Weekly Market Commentary January 31st to February 4th 2022

It was a busy week with lots of broad-based economic data being released, including U.S. manufacturing and service data, durable goods orders and the most anticipated of the group the Bureau of Labor Statistics January employment report.
The Institute for Supply Management kicked off the week with a positive result, posting a 57.6, slightly above the estimate of 57.5, but down from 58.8. A reading above 50.0 is expansionary while a reading below is contractionary. The economy is slowing but from strong and unsustainable levels of growth. Respondents reported that demand remains robust and supply chain issues remain, but improvement is being made as evidenced with declines in delivery times and orders backlogs.

Tuesday gave us some initial insight into the Friday employment report with the JOLTS job openings report. It showed more of the same trends, with employers posting 10.9 million jobs, up from 10.8 million in December and just below the all-time high of 11.1 million.
The ADP employment report disappointed on Wednesday with private payrolls declining 301k, well-below the estimate of a 200k gain. It was the first reported decline since December 2020 and was attributable to the omicron variant hitting the leisure and hospitality industries during the month.

The Institute for Supply Management released its services index data on Thursday with a strong reading of 59.9 and slightly ahead of estimate. This was the 20th consecutive monthly expansion and not that far below the 12-month average of 62.6. Similar to the manufacturing data earlier in the week the data showed mixed signs of bottleneck easing.
New Factory Orders in the U.S. showed goods declined by 0.4% in December, but when excluding transportation increased by 0.1%. “Core” Capital goods viewed as a business equipment spending proxy increased 1.3% in December.

Friday brought the most important economic data with Non-Farm Payrolls increasing by 465k. Additionally, the prior two months were revised upward by a whopping 709k despite surging Covid-19 infections. The Unemployment Rate increased from 3.9% to 4.0%, attributable to people reentering the workforce and evidenced in the Labor Force Participation rate increasing to 62.2%, which is the highest level since March 2020 and a positive sign that job openings may begin to get filled at a faster pace. Overall, it was a very good report and further proof that the Federal Reserve will start to raise rates in March.

As a result of the strong employment report the yield on the 10-Year U.S. Treasury increased to 1.91%, after starting the week at 1.77%. The yield curve continues to slowly flatten with the 2-Year and 10-Year spread at 0.61%, down from 1.1% just 3 months ago.

After a volatile and overall poor month for the major U.S. equity markets, the week started off with strong returns driven by positive earnings (including Alphabet) to a four-day win streak through Wednesday. However, this came to a screeching halt after Meta Platforms (formerly known as Facebook) issued weaker than expected guidance and led to a decline of the S&P 500 of -2.4% and its worst day in almost a year. Overall, the S&P 500 opened the week at 4,431 and closed at 4,500 for an approximate increase of 1.5%.

Key economic releases next week include consumer credit, Consumer Price Inflation, and several sentiment indices.

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