January 7, 2022

Weekly Market Commentary January 3rd to January 7th 2022

Happy New Year! The first week of 2022 brought more grim news on the COVID virus as the Omicron variant continues to spread worldwide. Look for this to start affecting economic data during next month’s January releases. The big story of the week was the employment situation. Nonfarm Payrolls, the primary job-creation measure put out by the Bureau of Labor Statistics, disappointed once again at 199,000 newly created jobs for December. Estimates ranged from 300,000 to 500,000 so, as in November, this number was a big miss. The news wasn’t all bad as there were upward revisions to the prior two months; the unemployment rate dropped more than expected to 3.9%; and the Average Hourly Earnings rose by 4.7% when the consensus called for 4.1%. With 10.6 million available unfilled jobs out there, the labor market is considered tight and will bolster the Fed’s decision to possibly begin raising short term interest rates later this year.

Elsewhere in the economy, we saw the Institute of Supply Management (ISM) release its December report for both manufacturing and services. The ISM Manufacturing Index came in slightly lower than expectations at 58.7%, while on the ISM Services side, the 67.6% print was very strong, beating the consensus of 66.8%. Keep in mind that anything above 50% on both of these measures constitutes expansion so both are in very good shape. Factory Orders for November (+1.6%) also came in much stronger than October which may be a sign of loosening supply-chain constraints.

Lastly, the Fed released the minutes from their December meeting and the language suggested the real likelihood of short-term interest rate increases for 2022. Due to the tightening labor market and stubbornly high inflation, look for possibly three interest rate increases beginning as early as June after the Fed winds down its bond buying program. This will ultimately be helpful for fixed income investors as the low-rate environment has made high quality bonds with juicy yields very scarce.

After finishing 2021 with stellar results, the stock market has started 2022 with a slight pullback. The S&P 500 finished the week down -1.8% at 4,677 while tech stocks bore the brunt of the pullback with the NASDAQ dropping -4.5% to 14,936. The Dow Jones Industrials Average was also down for the week, ending at 36,231 (-0.3%). Yields were up across the board as the 2-year US Treasury finished at 0.87%; the 10-year finished at 1.77%; and the 30-year closed the week at 2.11%.

Next week’s economic releases include CPI and PPI inflation data; the all-important December Retail Sales; Industrial Production and Capacity Utilization; and the UMichigan Consumer Sentiment Index.