Author: dredheadz

The Markets (as of market close January 28, 2022)

A very turbulent week, marked by volatility, ended with a robust finish. Last Friday’s gains were enough to push several of the benchmark indexes higher by the end of the week. The Dow advanced 1.3% and the S&P 500 gained 0.8%. A late-week tech rally was enough to move the Nasdaq back to where it began the week. Crude oil prices advanced for the sixth straight week, with prices reaching a nearly seven-year high. With supplies remaining limited, more projections are pointing to a return to $100.00 per barrel. Ten-year Treasury yields have risen 27 basis points since the beginning of January, while the dollar moved 1.7% higher. Gold prices, which had been gaining ground, fell back last week. Fourth-quarter corporate earnings have been generally favorable, with about 80% of the companies that have reported earnings so far this season beating projections.

Dip buyers and bargain hunters helped push the market indexes generally higher last Monday. After beginning the day well in the red, the Nasdaq was able to climb 0.6%, while the Dow and the S&P 500 each gained 0.3%. The Russell 2000 (-1.8%) and the Global Dow (-1.2%) failed to gain ground. Ten-year Treasury yields and crude oil prices declined, while the dollar gained a quarter of a percent. Most of the market sectors ended the day higher, led by consumer discretionary, which advanced 1.3%. Utilities, health care, and consumer staples ended the day lower.

Stocks were unable to maintain any momentum from the prior day, as each of the benchmark indexes fell last Tuesday. The Nasdaq led the downturn, dipping 2.3%, followed by the Russell 2000 (-1.4%), the S&P 500 (-1.2%), and the Dow (-0.2%). The Global Dow inched 0.2% higher. Investors apparently remained edgy as they awaited the Wednesday statement following the Federal Reserve’s meeting. Corporate earnings data for the fourth quarter of 2021 has not been quite as robust compared to the third quarter, although several major companies posted returns that beat projections. Ten-year Treasuries rose five basis points to close at 1.78%. Crude oil prices climbed 2.3% to $85.23 per barrel. The dollar was little changed on the day.

Last Wednesday, Wall Street reacted to the expected Federal Reserve announcement (see below) with mixed results. The Dow slid 0.4%, the Russell 2000 fell 1.3%, and the S&P 500 dipped 0.2%. The Nasdaq closed relatively unchanged. Among the market sectors, only financials and information technology gained ground, while materials and real estate each fell more than 1.0%. Ten-year Treasury yields added more than seven basis points to close at 1.85%. The dollar and crude oil prices also advanced on the day.

Despite last Thursday’s upbeat fourth-quarter gross domestic product (see below), stocks couldn’t hold on to gains from earlier in the day, ultimately closing in the red. The Russell 2000 continued to dive lower, ending the day down 2.3%, followed by the Nasdaq (-1.4%), the Global Dow (-0.6%), and the S&P 500 (-0.5%). The Dow was flat by the end of Thursday’s trading. Ten-year Treasury yields dipped 4 basis points, crude oil prices slid minimally, while the dollar advanced 0.9%.

Stocks roared back last Friday with the best day since June 2020. Strong fourth-quarter earnings reports from some major corporations may have lured dip buyers, at least for the day. The Nasdaq jumped 3.1%, followed by the S&P 500 (2.4%), the Russell 2000 (1.9%), the Dow (1.7%), and the Global Dow (0.5%). Gains in the market sectors were widespread, with only energy losing ground. Information technology jumped 4.3%, real estate gained 3.4%, and communication services advanced 2.9%. Crude oil prices climbed to $87.23 per barrel. Ten-year Treasuries and the dollar fell.

Stock Market Indexes

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic News

• No surprises followed last week’s Federal Open Market Committee meeting. The Committee noted that while indicators of economic activity and employment have continued to strengthen, supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation. The FOMC decided to keep the target range for the federal funds rate at 0.00%-0.25%. However, with inflation well above 2.0% and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate. Also, the Committee decided to continue reducing the monthly pace of its net asset purchases, bringing them to an end in early March. It is presumed that the first interest rate hike would occur following the FOMC’s March 16 meeting.
• The economy accelerated at an annual rate of 6.9% in the fourth quarter of 2021, according to the initial, or advance, estimate of gross domestic product. GDP advanced 2.3% in the third quarter. The increase in GDP primarily reflected increases in private inventory investment, exports, personal consumption expenditures (PCE), and nonresidential fixed investment that were partly offset by decreases in both federal, state, and local government spending. Imports, which are a subtraction in the calculation of GDP, increased. Personal consumption expenditures advanced 3.3% in the fourth quarter compared with a 2.0% increase in the third quarter. The price index for gross domestic purchases rose 6.9% in the fourth quarter, compared with a 5.6% gain in the third quarter. The personal consumption expenditures price index increased 6.5% in the fourth quarter, compared with a third-quarter increase of 5.3%. Excluding food and energy prices, the PCE price index increased 4.9% in the fourth quarter compared with an increase of 4.6% in the third quarter. The PCE price index increased 3.9% in 2021, compared with an increase of 1.2% in 2020.
• Inflationary pressures continued in December, according to the latest data from the Bureau of Economic Analysis. The personal consumption expenditures price index, a measure of inflation, rose 0.4% last month after climbing 0.6% in November. For the year, the PCE price index rose 5.8%. Energy prices increased 29.9% while food prices increased 5.7%. Excluding food and energy, the PCE price index increased 4.9% in 2021. Personal income climbed 0.3% in December and disposable (after-tax) personal income advanced 0.2%. The increase in personal income in December primarily reflected an increase in compensation that was partly offset by a decrease in proprietors’ income. Within compensation, the increase reflected increases in both private and government wages and salaries. Personal consumption expenditures, a measure of consumer spending, fell 0.6% in December, reflecting a decrease in spending for goods (-2.6%). Within goods, decreases were widespread across most components and were led by declines in spending on recreational goods and vehicles, “other” nondurable goods (which includes newspapers, household supplies, and games and toys), and furnishings and durable household equipment.
• New orders for durable goods declined for the first time in three months, falling 0.9% in December. Driving the decrease last month was a 3.9% dip in transportation equipment, a 14.4% decrease in nondefense aircraft and parts, and an 11.2% drop in defense aircraft and parts. Despite the December decrease, new orders for durable goods rose 20.9% in 2021.
• The advance report in international trade in goods saw the December trade deficit come in at $101.0 billion, up $2.9 billion from November. Exports of goods for December were $157.3 billion, $2.2 billion more than November exports. Imports of goods for December were $258.3 billion, $5.1 billion more than November imports.
• According to the Census Bureau, new home sales jumped 11.9% in December above the prior month’s total. However, sales of new single-family homes decreased 14.0% in 2021 compared to 2020. The median sales price of new houses sold in December 2021 was $377,700. The average sales price was $457,300. Inventory of new homes for sale sat at a supply of 6.0 months at the current sales rate.
• The national average retail price for regular gasoline was $3.323 per gallon on January 24, $0.017 per gallon more than the prior week’s price and $0.931 higher than a year ago. The Gulf Coast price increased more than $0.05 to $3.01 per gallon, the Midwest price increased nearly $0.02 to $3.13 per gallon, and the East Coast price increased more than $0.01 to $3.25 per gallon. The West Coast price decreased nearly $0.01, remaining virtually unchanged at $4.16 per gallon, and the Rocky Mountain price decreased less than $0.01, remaining virtually unchanged at $3.33 per gallon. As of January 24, residential heating oil prices averaged nearly $3.67 per gallon, almost $0.07 per gallon above last week’s price and nearly $1.10 per gallon higher than last year’s price at this time. Residential propane prices averaged nearly $2.75 per gallon, more than $0.02 per gallon above last week’s price and more than $0.55 per gallon above last year’s price.
• For the week ended January 22, there were 260,000 new claims for unemployment insurance, a decrease of 30,000 from the previous week’s level, which was revised up by 4,000. According to the Department of Labor, the advance rate for insured unemployment claims for the week ended January 15 was 1.2%, unchanged from the previous week’s rate. The advance number of those receiving unemployment insurance benefits during the week ended January 15 was 1,675,000, an increase of 51,000 from the prior week’s level, which was revised down by 11,000. States and territories with the highest insured unemployment rates for the week ended January 8 were Alaska (3.1%), New Jersey (2.7%), California (2.6%), Minnesota (2.6%), Illinois (2.5%), Rhode Island (2.5%), New York (2.4%), Kentucky (2.3%), Massachusetts (2.3%), Connecticut (2.1%), and Puerto Rico (2.1%). The largest increases in initial claims for the week ended January 15 were in California (+805), Kentucky (+527), Puerto Rico (+473), Rhode Island (+464), and Virginia (+406), while the largest decreases were in New York (-13,854), Missouri (-7,098), Washington (-6,016), Michigan (-5,555), and Texas (-4,773).

Eye on the Week Ahead The latest data on the employment sector is available this week with the release of the Job Openings and Labor Turnover Survey and the employment situation summary. Job openings have been falling, but the number of quits has continued to increase. On the employment side, December saw 199,000 new jobs added, the unemployment rate dipped, and average hourly earnings rose by 0.6%.

The Markets (as of market close January 21, 2022)

Volatility has engulfed the markets this month and is showing no signs of letting up, impacted by a more hawkish Federal Reserve stance, economic disruptions from Omicron, and risks to company profits due to rising costs. Fourth-quarter 2021 corporate earnings season has begun with uneven results so far. Inflation continues to hover over investors as they anticipate a bump in interest rates for the first time in three years, with the first increase likely coming in March. Demand for 10-year Treasuries has driven prices higher, sending yields lower for the first time in five weeks. With last week’s losses, both the Nasdaq and the Russell 2000 have declined nearly 12.0% in January. The Nasdaq is in correction territory, down over 10.0% from its November peak, hitting its lowest level since June 2021.

Wall Street continued its January swoon last Tuesday, falling lower to start the holiday-shortened trading week. The Nasdaq dropped 2.6%, recording its lowest close since October. The Russell 2000 fell 3.1%, the S&P 500 dipped 1.8%, the Dow declined 1.5%, and the Global Dow lost 1.1%. Investors continued to weigh the anticipated interest-rate hikes by the Federal Reserve, which meets this week. Ten-year Treasury yields jumped nine basis points to 1.86%. The dollar gained 0.5%. Crude oil prices rose to $85.89 per barrel. Among the market sectors, energy was the only gainer. Information technology (-2.5%), financials (-2.3%), and communication services (-2.0%) fell the most.

The slide continued for stocks last Wednesday. Each of the benchmark indexes listed here lost value. The Nasdaq extended losses, dropping more than 10.0% from a November high, falling into correction territory. The small caps of the Russell 2000 declined 1.5%, followed by the Nasdaq (-1.2%), the Dow and the S&P 500 (-1.0%), and the Global Dow (-0.8%). Ten-year Treasury yields dipped, despite projections that yields will cross the 2.0% threshold, possibly within the first six months of the year. The dollar also slipped lower. Crude oil prices continued to climb, reaching $86.50 per barrel. Consumer staples and utilities were the only market sectors to gain ground. Consumer discretionary and financials each fell 1.7%.

Higher-than-expected jobless claims didn’t help investor confidence, as equities dipped lower again last Thursday. Dip buyers sent stocks higher earlier in the day, but the rally did not last as each of the benchmark indexes listed here gave back any gains to close in the red. The Russell 2000 (-1.9%) led the declines, followed by the Nasdaq (-1.3%), the S&P 500 (-1.1%), the Dow (-0.9%), and the Global Dow (-0.3%). Crude oil prices moved slightly lower on Thursday, down 0.7% to around $86.29 per barrel. Ten-year Treasury yields and the dollar crept higher.

Stocks fell again last Friday, with tech shares leading the sell-off following shaky corporate earnings data. The S&P 500, which slid 1.9%, closed below its 200-day moving average for the first time since 2020. The Nasdaq dropped 2.7% and the Russell 2000 lost 1.8%. The Dow (-1.3%) and the Global Dow (-1.6%) also ended the day in the red. Ten-year Treasury yields, the dollar, and crude oil prices also declined to end the week.

Stock Market Indexes

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic News

• According to the latest data from the Census Bureau, the number of building permits issued in December for privately owned housing units rose by 9.1% over the November estimate. Permits issued for single-family construction increased 2.0% in December. Overall, the number of building permits issued in 2021 was 17.2% above the 2020 figure. Housing starts also increased in December, climbing 1.4% higher than the November rate. Single-family housing starts in December were 2.3% below the November figure. Housing starts increased 15.6% in 2021 compared to the previous year. Housing completions dipped in December, falling 8.7% below the November total. However, single-family home completions increased 3.9% in December. For 2021, housing completions increased 4.0% compared to 2020.
• Sales of existing homes broke a three-month series of gains, falling 4.6% in December. Year over year, existing home sales dipped 7.1%. According to the National Association of Realtors®, the December pullback was more attributable to supply constraints than weakened demand for housing. However, existing home sales may continue to slow in the coming months due to anticipated higher mortgage rates. Unsold inventory sits at a 1.8-month supply at the current sales pace, down from November’s 2.1-month supply. The median existing home price for all housing types was $358,000 in December, up 1.2% from the November price of $353,900 and 15.8% above the December 2020 figure ($309,200). Sales of existing single-family homes also fell in December, down 4.3% from November’s total and off 6.8% from a year ago. The median existing single-family home price in December was $364,300, 0.5% above the November price ($362,600) and 16.1% higher than the December 2020 price.
• The national average retail price for regular gasoline was $3.306 per gallon on January 17, $0.011 per gallon more than the prior week’s price and $0.927 higher than a year ago. The Gulf Coast price increased nearly $0.04 to $2.96 per gallon, the East Coast price increased more than $0.01 to $3.24 per gallon, and the West Coast price increased less than $0.01, remaining virtually unchanged at $4.16 per gallon. The Rocky Mountain price decreased nearly $0.02 to $3.33 per gallon, and the Midwest price decreased less than $0.01, remaining virtually unchanged at $3.11 per gallon. As of January 17, residential heating oil prices averaged almost $3.61 per gallon, nearly $0.15 per gallon above last week’s price and $1.05 per gallon higher than last year’s price at this time. Residential propane prices averaged nearly $2.73 per gallon, more than $0.02 per gallon above last week’s price and more than $0.54 per gallon above last year’s price.
• For the week ended January 15, there were 286,000 new claims for unemployment insurance, an increase of 55,000 from the previous week’s level, which was revised up by 1,000. According to the Department of Labor, the advance rate for insured unemployment claims for the week ended January 8 was 1.2%, an increase of 0.1 percentage point from the previous week’s rate. The advance number of those receiving unemployment insurance benefits during the week ended January 8 was 1,635,000, an increase of 84,000 from the prior week’s level, which was revised down by 8,000. States and territories with the highest insured unemployment rates for the week ended January 1, were Alaska (3.1%), Minnesota (2.8%), Kentucky (2.7%), New Jersey (2.6%), New York (2.6%), Rhode Island (2.5%), California (2.4%), Connecticut (2.4%), Massachusetts (2.3%), and Oregon (2.3%). The largest increases in initial claims for the week ended January 8 were in California (+11,295), New York (+10,639), Texas (+10,437), Kentucky (+8,476), and Missouri (+7,768), while the largest decreases were in Massachusetts (-2,079), Connecticut (-1,437), Michigan (-1,158), New Hampshire (-424), and Rhode Island (-424).

Eye on the Week Ahead

There’s plenty of economic news to watch for this week. The first estimate of the fourth-quarter 2021 gross domestic product is out. The economy advanced at an annualized rate of 2.3% in the third quarter, well off the 6.7% growth rate in the second quarter. The December figures on personal income and spending are available this week. Personal income rose 0.4% in November, consumer spending advanced 0.6%, while prices for consumer goods and services climbed 0.6% for the month and 5.7% since November 2020. Aside from these important economic reports, all eyes will be focused on the Federal Reserve, which meets this week. It is expected that the Fed will continue to address rising inflation by further reducing stimulus and projecting interest-rate increases beginning this March.

The Markets (as of market close January 14, 2022)

Equities closed generally lower last week, with only the Global Dow ending the week in the black. Inflation, or more likely the Federal Reserve’s response to rising prices, may have influenced investors. Markets are still adjusting to the anticipated tighter monetary policy from the Fed, which is planning on raising interest rates several times this year. The central bank is also considering reducing the size of its balance sheet, which means less demand for bonds. Ten-year Treasury yields ended the week flat. The dollar dipped lower, while crude oil prices rose nearly 7.0%, reaching $84.23 per barrel. Gold advanced, but remains marginally below its 2021 year-end price.

Stocks continued their slide last Monday, despite a marginal surge in tech shares. Several of the major indexes declined, with the Dow (-0.5%), the S&P 500 (-0.1%), the Russell 2000 (-0.4%), and the Global Dow (-0.2%) ending the day in the red. Only the Nasdaq was able to close ahead, but only by 0.1%. The Federal Reserve’s monetary policy in response to rising inflation continued to dominate the market. Ten-year Treasury yields climbed higher as bond prices fell. Crude oil prices dropped to $78.43 per barrel. The dollar rose against a basket of currencies. Health care, communication services, and information technology were the only market sectors to advance.

Last Tuesday saw stocks rebound after Federal Reserve Chair Jerome Powell stated that the Fed would do whatever is needed to control rising inflation. Tech stocks followed Monday’s increase with another strong performance, sending the Nasdaq up 1.4% on the day. The Russell 2000 jumped 1.1%, followed by the S&P 500 and the Global Dow (0.9%), and the Dow (0.5%). The dollar and 10-year Treasury yields fell, while crude oil prices rose to $81.42 per barrel. Energy, materials, communication services, and information technology led the market sectors.

Stocks closed last Wednesday generally higher, despite rising inflation. The benchmark indexes listed here posted gains, with the S&P 500 (0.3%) and the Nasdaq (0.2%) finishing ahead of the Dow (0.1%). Only the Russell 2000 failed to add value, closing down 0.5%. The Consumer Price Index rose 0.5% in December, ending 2021 with its largest annual increase in nearly 40 years, increasing the likelihood that the Federal Reserve will move to quell inflationary pressures. Ten-year Treasury yields dipped lower, as did the dollar. Crude oil prices rose to $82.70 per barrel.

The Nasdaq dropped 2.5% last Thursday amid tech stock losses. With the growing likelihood that interest rates will be rising soon, investors may be moving from growth shares to value stocks. Also last Thursday, investors saw an increase in weekly unemployment claims and wholesale price inflation. The S&P 500 fell 1.4%, the Russell 2000 dipped 0.8%, and the Dow slipped 0.5%. The Global Dow inched up 0.1%. Ten-year Treasury yields, the dollar, and crude oil prices slid lower. Consumer discretionary and information technology declined more than 2.0%.

Stocks were mixed last Friday, with the Nasdaq (0.6%), the Russell 2000 (0.1%), and the S&P 500 (0.1%) ending the day higher, while the Dow (-0.6%) and the Global Dow (-0.2%) closed lower. Crude oil prices, the dollar, and 10-year Treasuries climbed higher on the day. Fourth-quarter earnings reports from a few major banks were released last week, with mixed results. A slew of banks and financial companies will be reporting their fourth-quarter earnings data this week.

Stock Market Indexes

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic News

• Inflationary pressures continued to increase in December. According to the latest data, the Consumer Price Index rose 0.5% last month after increasing 0.8% in November. The CPI advanced 7.0% in 2021, the highest annual increase since 1982. Food prices rose 0.5% in December (6.3% for the year). Energy prices dipped 0.4% last month, but increased 29.3% in 2021, led by a 49.6% rise in gasoline prices. December saw prices increase for new vehicles (1.0%) and used cars and trucks (3.5%). For 2021, automobile prices rose markedly, with new vehicle prices advancing 11.8%, while prices for used cars and trucks climbed 37.3%. A rise in prices for apparel (1.7%) and shelter (0.4%) also contributed to the increase in the December CPI.
• The Producer Price Index increased 0.2% in December after climbing 1.0% in November. The PPI moved up 9.7% in 2021, the largest calendar-year increase since data was first collected in 2010. A 0.5% increase in prices for services drove the overall December increase, as prices for goods decreased 0.4%. Over half of the December advance in prices for services is attributable to margins for final demand trade services, which moved up 0.8%. (Trade indexes measure changes in margins received by wholesalers and retailers.) Leading the December decline in goods prices was a decrease in energy prices, which fell 3.3%. Prices for foods fell 0.6% in December.
• Retail sales fell 1.9% in December after advancing 0.2% in November. Nevertheless, retail sales rose 19.3% in 2021. Weakness in sales was broad-based in December, with only a few exceptions. Last month saw clothing and clothing accessories stores sales dip 3.1%, motor vehicle and parts dealers sales fall 0.4%, and nonstore (online) sales drop 8.7%. Many factors may have contributed to the decrease in December sales, including lack of inventory and reluctance to spend on big-ticket items that were not discounted; some shoppers may have started their buying earlier than usual. While December sales may have dropped off, most businesses saw sales increase in 2021 compared to the previous year’s totals. Sales for motor vehicle and parts dealers rose 23.6%, furniture and home furnishings sales increased 26.4%, electronics and appliance stores sales rose 25.2%, clothing and clothing accessories stores sales jumped 48.4%, and gasoline stations sales advanced 36.6%.
• Both import and export prices surprisingly declined in December. Import prices fell 0.2% after advancing 0.7% in November, as lower fuel prices more than offset higher nonfuel imports. Despite the December drop, import prices increased 10.4% for 2021, the largest calendar-year rise since import prices increased 10.6% in 2007. Export prices dropped 1.8% last month after increasing 1.0% in November. The December decline in export prices was the largest one-month drop since a 3.5% price decline in April 2020. Export prices rose 14.7% from December 2020 to December 2021, marking the largest calendar-year increase since data was first published in 1984.
• Industrial production declined 0.1% in December. Losses of 0.3% for manufacturing (+3.5% for 2021) and 1.5% for utilities were mostly offset by a gain of 2.0% for mining. For the fourth quarter as a whole, total industrial production rose at an annual rate of 4.0%. Total industrial production in December was 3.7% higher than it was at the end of 2020 and 0.6% above its pre-pandemic (February 2020) reading.
• The federal budget deficit was $21.3 billion for December. Government receipts were $486.7 billion, while outlays totaled $508.0 billion. The total government deficit through the first three months of fiscal year 2022 is $377.7 billion, $195.2 billion lower than the deficit over the same period in fiscal year 2021.
• The national average retail price for regular gasoline was $3.295 per gallon on January 10, $0.014 per gallon more than the prior week’s price and $0.978 higher than a year ago. Gasoline production increased during the week ended January 7, averaging 8.6 million barrels per day. U.S. crude oil refinery inputs averaged 15.6 million barrels per day during the week ended January 7 — 293,000 barrels per day less than the previous week’s average. Refineries operated at 88.4% of their operable capacity.
• For the week ended January 8, there were 230,000 new claims for unemployment insurance, an increase of 23,000 from the previous week’s level. According to the Department of Labor, the advance rate for insured unemployment claims for the week ended January 1 was 1.1%, a decrease of 0.2 percentage point from the previous week’s rate. The advance number of those receiving unemployment insurance benefits during the week ended January 1 was 1,559,000, a decrease of 194,000 from the prior week’s level, which was revised down by 1,000. This is the lowest level for insured unemployment since June 2, 1973, when it was 1,556,000. States and territories with the highest insured unemployment rates for the week ended December 25, 2021, were Alaska (3.2%), Minnesota (2.6%), California (2.5%), New Jersey (2.4%), Illinois (2.3%), New York (2.3%), Massachusetts (2.1%), Rhode Island (2.1%), Connecticut (2.0%), and Oregon (1.9%). The largest increases in initial claims for the week ended January 1 were in New York (+8,812), Pennsylvania (+6,772), Connecticut (+6,020), Washington (+4,626), and Michigan (+3,923), while the largest decreases were in Missouri (-1,086), Tennessee (-674), Puerto Rico (-329), Rhode Island (-288), and New Mexico (-101).

Eye on the Week Ahead

This week’s economic news focuses on the housing sector, with the December data on housing starts and existing home sales. The number of building permits rose 3.6% in November, while housing starts jumped 11.8% — both signs that new home construction is on the upswing. Sales of existing homes have also been on the rise since September 2021. November saw existing home sales increase 1.9%, another indication that the demand for housing is solid.

The Markets (as of market close January 7, 2022)

After beginning the week on a high note, stocks couldn’t maintain that momentum, ending the week in the red. Following a record close on Monday, the S&P 500 ended the week down 1.9%, the worst start to a year since 2016. Some investors may be concerned that the Federal Reserve will raise interest rates faster than had been anticipated. The Nasdaq fell 4.5%, its worst week since February 2021. Treasury yields continued to mount in anticipation of higher interest rates. While the December employment report showed a slightly underwhelming 199,000 new jobs added, the unemployment rate fell to a pandemic-era low of 3.9%, possibly adding further fodder for the Fed to continue its hawkish bent.

Wall Street kicked off the start of 2022 in fine fashion, recording record highs last Monday. The Nasdaq and the Russell 2000 climbed 1.2%. The large caps of the Dow (0.7%) and the S&P 500 (0.6%) advanced, while the Global Dow added 0.6%. Bond prices dipped, possibly in anticipation of rising interest rates, sending 10-year Treasury yields up to 1.62%. Crude oil prices rose $76.07 per barrel, while the dollar gained 0.7%. Energy (3.1%) and consumer discretionary (2.8%) led the market sectors, while materials, real estate, and health care fell. The risk rally sent gold prices down nearly 1.5% to $1,801.90 per ounce.

Stocks were mixed last Tuesday, with the Dow reaching its second record high in 2022, while a tech rout pulled the Nasdaq down 1.3%. The Russell 2000 and the Global Dow each gained more than 1.0% on the day, while the S&P 500 was little changed. Ten-year Treasury yields jumped to 1.66%, crude oil prices rose for the second consecutive day to close at $77.00 per barrel, while the dollar stalemated. Energy, financials, and industrials climbed higher, while information technology and health care trended lower.

Equities fell last Wednesday following the release of the minutes from the Federal Reserve meeting, raising the prospect for multiple interest-rate hikes beginning in the near term. The Nasdaq and the Russell 2000 each dropped 3.3%. The S&P 500 fell 1.9%. The Dow dipped 1.1%. Ten-year Treasury yields continued to rise, closing at 1.7% as bond prices fell. Crude oil prices rose marginally to close at $77.19 per barrel. The dollar was little changed. Each of the market sectors lost value, with the biggest declines hitting information technology, real estate, communication services, and consumer discretionary.

Stocks continued to trend lower last Thursday, with only the Russell 2000 advancing by the close of trading. The Dow fell 0.5% and the Global Dow dipped 0.4%. The Nasdaq and the S&P 500 were flat. Ten-year Treasury yields rose again, climbing to 1.73%. Crude oil prices were approaching $80.00 per barrel, while the dollar was unchanged. Energy and financials advanced, while health care and materials declined.

Equities couldn’t reverse course last Friday, closing the day in the red. The Russell 2000 fell 1.1%, followed by the Nasdaq (-1.0%), and the S&P 500 (-0.4%). The Dow was flat, while the Global Dow gained 0.7%. The dollar and crude oil prices fell, while 10-year Treasury yields continued to climb higher, jumping 3.8 basis points. Among the market sectors, energy, financials, and utilities advanced, while information technology and consumer discretionary fell more than 1.0%.

Stock Market Indexes

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic News

• December saw 199,000 new jobs added, and the unemployment rate fell 0.3 percentage point to 3.9%. The total number of unemployed persons declined by 483,000 to 6.3 million. For comparison, in February 2020, the unemployment rate was 3.5% and there were 5.7 million unemployed persons. Employment has increased by 18.8 million since April 2020 but is down by 3.6 million, or 2.3%, from its pre-pandemic level in February 2020. In December, the number of workers who permanently lost jobs dipped by 202,000 to 1.8 million. The labor force participation rate was unchanged at 61.9% in December but remains 1.5 percentage point lower than in February 2020. The employment-population ratio increased by 0.2 percentage point to 59.5% in December but is 1.7 percentage point below its February 2020 level. In December, there were 5.7 million people not in the labor force who wanted a job. This total fell by 1.6 million over the year, but is 717,000 higher than in February 2020. In December, the share of employed persons who teleworked because of the coronavirus was 11.1%, little changed from November. In December, 3.1 million persons reported that they had been unable to work because their employer closed or lost business due to the pandemic. This level is down from 3.6 million in November. In December, average hourly earnings increased by $0.19 to $31.31. Over the past 12 months, average hourly earnings have increased by 4.7%. The average work week in December was unchanged at 34.7 hours.
• According to the latest report from IHS Markit, the U.S. Purchasing Managers’ Index for December dipped to 57.7, down from 58.3 in November. Since a reading above 50 indicates growth in the manufacturing sector, survey respondents noted growth in December, but at a slower pace than in November. With the exception of October and November, the pace of output growth in December was the slowest since October 2020 as material shortages and supplier delays continued to drag production lower. On the plus side, supply-chain bottlenecks eased as did client demand.
• The services sector enjoyed a strong December, posting an IHS Markit U.S. Services PMI Business Activity Index of 57.6. While the rise in services activity was the slowest in the past three months, the decrease was marginal and was supported by a sharp increase in new business, as the rise in new orders was the fastest in the last five months. Although firms sought to increase their workforces to tackle strong growth in backlogs of work, labor shortages and challenges retaining staff hampered progress. Meanwhile, soaring wage bills and greater supplier prices led to the steepest increase in cost burdens on record.
• According to the latest Job Openings and Labor Turnover Summary, November saw the number and rate of job openings decrease to 10.6 million (-529,000) and 6.6%, respectively. Job openings declined in several industries, with the largest decreases in accommodation and food services (-261,000), construction (-110,000), and nondurable goods manufacturing (-66,000). Job openings increased in finance and insurance (+83,000) and in federal government (+25,000). Over the 12 months ended in November 2021, hires totaled 74.5 million and separations totaled 68.7 million, yielding a net employment gain of 5.9 million. While the number of hires was little changed in November from the previous month, the number of total separations increased by 382,000 to 6.3 million. The number of workers who quit their respective jobs increased in November to a series high of 4.5 million, while the quits rate jumped to 3.0%.
• The latest data shows that the goods and services trade deficit for November was $80.2 billion, up $13.0 billion from October. November exports were $224.2 billion, $0.4 billion more than October exports. November imports were $304.4 billion, $13.4 billion more than October imports. Year to date, the goods and services deficit increased $174.6 billion, or 28.6%, from the same period in 2020. Exports increased $354.4 billion, or 18.2%. Imports increased $529.0 billion, or 20.7%.
• The national average retail price for regular gasoline was $3.281 per gallon on January 3, $0.006 per gallon more than the prior week’s price and $1.032 higher than a year ago. Gasoline production decreased during the week ended December 31, averaging 8.5 million barrels per day. U.S. crude oil refinery inputs averaged 15.9 million barrels per day during the week ended December 31 — 163,000 barrels per day more than the previous week’s average. Refineries operated at 89.8% of their operable capacity.
• Not unexpectedly, claims for unemployment insurance rose during the holiday period of Christmas through New Year’s Day. For the week ended January 1, there were 207,000 new claims for unemployment insurance, an increase of 7,000 from the previous week’s level, which was revised up by 2,000. According to the Department of Labor, the advance rate for insured unemployment claims for the week ended December 25 was 1.3%, unchanged from the previous week’s rate. The advance number of those receiving unemployment insurance benefits during the week ended December 25 was 1,754,000, an increase of 36,000 from the prior week’s level, which was revised up by 2,000. Unemployment insurance claims are in line with pre-pandemic totals. During the last week of February 2020 (pre-pandemic), there were 219,000 initial claims for unemployment insurance, and the number of those receiving unemployment insurance benefits was 1,724,000. States and territories with the highest insured unemployment rates for the week ended December 18, 2021 were Alaska (3.1%), the Virgin Islands (2.6%), New Jersey (2.3%), California (2.2%), Minnesota (2.2%), Puerto Rico (2.0%), Illinois (1.9%), Massachusetts (1.9%), New York (1.8%), and Rhode Island (1.8%). The largest increases in initial claims for the week ended December 25 were in New Jersey (+4,660), Pennsylvania (+3,320), Ohio (+2,615), Michigan (+2,440), and New York (+2,287), while the largest decreases were in California (-7,320), Texas (-3,955), Virginia (-2,183), Alabama (-1,293), and Wisconsin (-1,181).

Eye on the Week Ahead

Inflation data for December is available this week with the release of the Consumer Price Index and the Producer Price Index. The CPI rose 6.8% through November, while the PPI vaulted 9.6%. Neither index is projected to decrease based on December’s figures.

Overview

The year 2021 was one of extreme change. January saw the inauguration of President Joe Biden, but not before protesters sieged the United States Capitol. Despite the initial tumult, the year began with hope that increased availability of coronavirus vaccinations would lead to the end of the pandemic. Unfortunately, throughout the year, the emergence of virus mutations, coupled with the uneven distribution of vaccines, saw millions more people become ill or perish after contracting the virus.

Nevertheless, several of the worlds’ largest economies enjoyed notable recoveries. In the United States, two additional rounds of stimulus payments in the first quarter helped line consumers’ pocketbooks, which led to rapidly increasing demand for goods and services. Historically low lending rates and a rise in remote work increased the opportunity for consumers to spend.

However, the rapid economic turnaround brought with it a historic surge in consumer and producer prices, labor shortages, and global supply-chain bottlenecks. Low-interest rates and stimulus measures adopted by the Federal Reserve gave people more access to money and buying power. Personal income increased as did personal consumption expenditures. Corporate earnings were strong, despite labor and supply shortages and lingering economic uncertainty caused by the pandemic.

U.S. inflation reached a nearly 40-year high late in the year, as growing consumer demand was stunted by pandemic-related supply constraints. Historically low mortgage rates helped propel the housing market, as both the number of residential sales and property values escalated. Energy prices, particularly gas prices, rose by nearly 50%, as crude oil reached more than $80 per barrel for the first time since 2014.

An influx of day-trading investors collided with hedge-fund investors and Wall Street professionals. So-called “meme traders” manipulated stock prices from their sofas through collaborative investing on social media platforms.

Cryptocurrency also gained more mainstream acceptance and attention in 2021, with a market cap of all cryptocurrencies topping $3 trillion. The rapid growth of cryptocurrency also led to more government scrutiny. China’s central bank declared all cryptocurrency-related transactions illegal as that country was determined to crack down on the industry. U.S. economic recovery was highlighted by job growth and dwindling unemployment claims. Employment gains averaged over 550,000 per month in 2021, while weekly jobless claims fell to a 52-year low in December.

Despite increasing numbers of COVID-related cases, the stock market generally prospered, with each of the benchmark indexes posting year-over-year gains. Each of the market sectors also ended 2021 in the black. Overall, we experienced plenty of change in 2021. The year 2022 is likely to be very interesting as well.

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Snapshot 2021

The Markets

• Equities: Throughout the year, the U.S. stock market pushed higher. Despite mounting COVID cases, escalating inflation, labor shortages, supply bottlenecks, and severe weather that hit nearly every part of the country at one time or another, Wall Street continued to post gains. Large caps, small caps, growth, value — seemingly every market segment increased, surpassing most of the outlooks at the start of the year. While many factors contributed to the strong market performance in 2021, a few highlights include consistently favorable data pointing to ongoing economic recovery, strong corporate earnings throughout 2021, the acceptance of cryptocurrency as a mainstream investment, a low interest-rate environment, stimulus programs that provided consumers with cash, increasing job opportunities, and the availability of coronavirus vaccines.
• On the last day of the year, the S&P 500 eclipsed its 2020 closing by nearly 27.0%, the Nasdaq rose by more than 21.3%, the Dow gained about 19.0%, the Global Dow advanced 18.6%, and the Russell 2000 climbed 13.7%. The fourth quarter was particularly robust for large caps, with the S&P 500 climbing 10.7% and the Dow advancing 7.4%. Each of the market sectors closed the year well above its prior year’s totals. Energy ended 2021 48.0% higher, followed by real estate (43.0%), information technology (33.5%), and financials (33.0%).
• Bonds: For the most part, long-term bonds underperformed, particularly on inflation concerns, low interest rates, economic growth, and favorable stock performance. Ten-year Treasuries ended the year at 1.51%, up 60 basis points, the biggest annual rise since 2013. U.S. bond returns were down about 3.0%, well below other major bond markets. With the Federal Reserve likely to accelerate interest rates in 2022, 10-year Treasury yields are expected to push above 2.0% next year.
• Oil: Crude oil prices fell in 2020 as demand dwindled due to coronavirus constraints. However, crude oil prices surged in 2021 as economic growth quickly increased demand and the time needed to accelerate output to pre-pandemic levels. Crude oil prices opened the year around $48.50 per barrel but rose steadily for most of the year, reaching more than $80.00 per barrel in October — a price not seen since 2014 — ultimately ending 2021 at about $75.44 per barrel.
• Prices at the pump also vaulted higher in 2021. The national average retail price for regular gasoline was $2.249 per gallon to begin 2021. Gas prices steadily increased throughout the year, reaching a high of $3.410 in early November. Gas prices trended marginally lower for the remainder of 2021, closing out the year at $3.275 per gallon on December 27.
• FOMC/interest rates: The Federal Reserve began the year focused on promoting economic recovery. The Fed maintained the target range for the federal funds rate at 0.00%-0.25% for the duration of 2021, while continuing to purchase securities on a monthly basis ($80 billion Treasuries and $40 billion mortgage-backed securities) through November. For much of the year, employment gains were solid, consumer demand for goods and services increased, and overall economic activity strengthened. However, strong consumer demand collided with pandemic-related supply constraints, driving prices higher, such that inflation hit a nearly 39-year high in November, with prices up 6.8% (Consumer Price Index) from a year before. The Fed initially termed the rapid rise in prices “transitory,” expecting that the factors driving inflation upward would subside. However, by November, the Fed acknowledged that factors contributing to inflationary pressures were more than “transitory” and agreed to begin tapering its asset purchases in December. The Fed also projected that it would increase interest rates as many as three times in 2022.
• US Dollar-DXY: The dollar held its own for much of the year, reaching a new high in November. Despite a marginal dip at the end of the year, the dollar is still on track to enjoy its biggest gain since 2015. With the prospects of the Federal Reserve raising interest rates, the dollar could see another surge in 2022. The US Dollar Index (DX-Y.NYB), which measures the U.S. dollar against the currencies of several other countries, hit a high of $96.94 in November and hovered between $92.60 and $96.00 since early July. It closed at $95.64 on December 31, rising nearly 6.5% since the beginning of the year.
• Gold: Gold prices began the year at $1,893.10 and closed 2021 at $1,830.30, a decrease of nearly 3.3%. During the year, gold fell to $1,700.20 at the end of February, only to surge to $1,895.70 in mid-May. Generally, stock market growth, rising bond yields, and a stronger dollar kept gold prices in check for most of 2021.

Last Month’s Economic News

• Employment: Job growth slowed in November with the addition of 210,000 new jobs, well below the 2021 monthly average of 555,000. The unemployment rate fell by 0.4 percentage point to 4.2%. The number of unemployed persons fell by 542,000 to 6.9 million. For comparison, in November 2020 the unemployment rate was 6.7% and the number of unemployed persons was 10.7 million. While both measures are down considerably from their highs at the end of the February-April 2020 recession, they remain above their levels prior to the coronavirus pandemic (3.5% and 5.7 million, respectively, in February 2020). Among the unemployed, the number of workers who permanently lost their jobs declined by 205,000 to 1.9 million in November, although this is 623,000 higher than in February 2020. The labor force participation rate edged up to 61.8% in November and is 1.5 percentage point lower than in February 2020. The employment-population ratio increased by 0.4 percentage point to 59.2% in November but remained below the pre-pandemic figure of 61.1% in February 2020. In November, average hourly earnings increased by $0.08 to $31.03. Over the past 12 months ended in November, average hourly earnings rose by 4.8% (average hourly earnings in November 2020 were $29.61). The average work week increased by 0.1 hour to 34.8 hours in November (unchanged from November 2020).
• There were 965,000 Initial claims for unemployment insurance for the week ended January 9, 2021. During the same period, the total number of workers receiving unemployment insurance was 5,271,000. Over the course of the year, initial weekly claims steadily decreased on a monthly basis thereafter, hitting a low of 188,000 in early December. As of December 25, there were 198,000 initial claims for unemployment insurance and the total number of claims paid for the week ended December 18 was 1,716,000, which is below the February 2020 (pre-pandemic) figure of 1,724,000.
• FOMC/interest rates: The Federal Open Market Committee met in December and agreed to cut its asset purchase program by $30 billion per month beginning in January 2022, with the option of making similar reductions in the pace of asset purchases each month thereafter, unless the Committee determines an adjustment is warranted. The Committee decided to keep the target range for the federal funds rate at 0.00%-0.25%. The FOMC acknowledged that inflation is broad-based and attributed it to “supply and demand imbalances related to the pandemic and the reopening of the economy.”
• GDP/budget: While the economy accelerated in the third quarter, it did not keep pace with the rate of growth in the second quarter. Gross domestic product increased at an annualized rate of 2.3% in the third quarter. GDP rose 6.7% in the second quarter. The increase in third-quarter GDP reflected the continued economic impact of the COVID-19 pandemic. A resurgence of COVID-19 cases resulted in new restrictions and delays in the reopening of establishments in some parts of the country. Government assistance payments in the form of forgivable loans to businesses, grants to state and local governments, and social benefits to households all decreased. Consumer spending, as measured by the personal consumption expenditures index, rose 2.3% in the third quarter, well below the pace set in the second quarter (6.7%) and the first quarter (6.3%). Nonresidential (business) fixed investment rose 1.7% in the third quarter compared to a 9.2% jump in the second quarter. Exports fell 5.3% in the third quarter, compared with a 7.6% increase in the previous quarter. Imports, which are a negative in the calculation of GDP, rose 4.7% in the third quarter, down from a 7.1% increase in the second quarter. Consumer prices increased 5.3% in the third quarter (6.5% in the second quarter). Excluding food and energy, consumer prices advanced 4.6% in the third quarter (6.1% in the second quarter).
• November saw the federal budget deficit come in at $191.3 billion, down roughly 32.0% from November 2020. The deficit for the first two months of fiscal year 2022, at $356.4 billion, is 20.5% lower than the first two months of the previous fiscal year. Through November, government outlays rose 4.0%, while receipts increased 21.6%. Through the first two months of fiscal year 2022 compared to the same period last year, individual income taxes are up $79.6 billion ($282.1 billion versus $202.5 billion), while corporate income taxes have risen $9.4 billion ($15.4 billion versus $6.0 billion).
• Inflation/consumer spending: According to the latest Personal Income and Outlays report, personal income and disposable personal income rose 0.4% in November after increasing 0.5% and 0.4%, respectively, in October. Consumer spending advanced 0.4% in November after increasing 1.4% the previous month. Consumer prices climbed 0.6% in November after increasing 0.7% in October. Consumer prices have risen 5.7% since November 2020.
• The Consumer Price Index climbed 0.8% in November after advancing 0.9% in October. Over the 12 months ended in November, the CPI rose 6.8% — the largest 12-month gain since June 1982. Price growth was broad based, with all major categories showing an increase, led by gasoline (6.1%), energy commodities (5.9%), fuel oil (3.5%), and used cars and trucks (2.5%). Prices for food rose 0.7%, while prices for food at home increased 0.8%. Since November 2020, gasoline prices are up 58.1%, fuel oil has increased 59.3%, food prices have risen 6.1% (food at home has climbed 6.4%), while new vehicles (11.1%) and used vehicles (31.4%) also advanced.
• Prices that producers receive for goods and services rose 0.8% in November following a 0.6% October jump. Producer prices increased 9.6% for the 12 months ended in November, the largest advance since data was first calculated in November 2010. Producer prices less foods, energy, and trade services rose 0.7% in November, which is the largest monthly increase since July 2021. In November, prices for services increased 0.7%, while prices for goods climbed 1.2%. For the 12 months ended in November, prices less foods, energy, and trade services moved up 6.9%, the largest rise since 12-month data was first calculated in August 2014.
• Housing: Sales of existing homes increased 1.9% in November, marking the third consecutive monthly increase. Existing home sales dropped 2.0% from November 2020. The median existing-home price was $353,900 in November, the same price as in October. Unsold inventory of existing homes represents a 2.1-month supply at the current sales pace, a decline from both the prior month and from one year ago. Sales of existing single-family homes rose 1.6% in November following a 1.3% jump in October. Over the last 12 months, sales of existing single-family homes are down 2.2%. The median existing single-family home price was $362,600 in November, up from $360,800 in October.
• New single-family home sales also advanced in November, climbing 12.4% after falling 9.2% (revised) in October. The median sales price of new single-family houses sold in November was $416,900 ($408,700 in October). The November average sales price was $481,700 ($478,200 in October). The inventory of new single-family homes for sale in November represented a supply of 6.5 months at the current sales pace, down from the October estimate of 7.1 months.
• Manufacturing: Industrial production rose 0.5% in November, advancing 5.3% since November 2020. Manufacturing increased 0.7% in November, reaching its highest level since January 2019. Over the past 12 months, manufacturing has increased 4.6%. Mining rose 0.7% in November, while utilities decreased 0.8%. Several market groups advanced in November. Over the 12 months ended in November, motor vehicles and parts fell 5.4%, while most of the other industry groups advanced, with notable gains in machinery, petroleum and coal products, electric, and natural gas. Capacity utilization reached 76.8% in November, its highest level since 76.8% in November 2019.
• November saw new orders for durable goods increase 2.5%, advancing for six out of the last seven months. Durable goods orders inched up 0.1% in October. New orders for durable goods rose 21.5% since November 2020. Excluding transportation, new orders increased 0.8% in November. Excluding defense, new orders increased 2.0%. Transportation equipment, up following two consecutive monthly decreases, led the November increase, up 6.5%.
• Imports and exports: Both import and export prices rose higher in November. Import prices rose 0.7% after increasing 1.5% in the prior month. Prices for imports have risen each month of 2021, except for a 0.2% decline in August. Since November 2020, import prices have advanced 11.7%, the largest 12-month increase since prices climbed 12.7% for the period ended in September 2011. Import fuel prices continued to increase, rising 2.0% in November. Import fuel prices have advanced 86.1% since November 2020. Excluding fuel prices, import prices rose 0.5% in November and are up 1.6% for the last 12 months. Export prices increased 1.0% in November after rising 1.6% in October. Export prices increased 18.2% over the 12 months ended in November, the largest 12-month advance since data was first published in September 1984.
• The international trade in goods deficit was $97.8 billion in November, up $14.6 billion, or 17.5%, from October. Exports of goods were $154.7 billion in November, $3.3 billion less than in October. Imports of goods were $252.4 billion in November, $11.3 billion more than in October. The November drop in exports was widespread, with only foods, feeds, and beverages increasing. On the other hand, each category of imports rose, led by industrial supplies, consumer goods, and automotive vehicles.
• The latest information on international trade in goods and services, out December 7, is for October and shows that the goods and services trade deficit was $161.1 billion, a decrease of $14.3 billion, or 17.6%, from the September deficit. October exports were $223.6 billion, 8.1%, more than September exports. October imports were $290.7 billion, 0.9%, more than September imports. Year to date, the goods and services deficit increased $161.1 billion, or 29.7%, from the same period in 2020. Exports increased $315.1 billion, or 17.9%. Imports increased $476.8 billion, or 20.7%.
• International markets: Despite several countries reporting record numbers of COVID-19 cases, global economic recovery has been fairly steady, as several nations around the world held off from imposing fresh lockdowns. Gross domestic product rose in several countries including the United Kingdom (6.9%), the Eurozone (5.2%), Germany (2.9%), Japan (1.6%), and China (7.7%). Crude oil prices dipped below $80.00 per barrel following their biggest rise since 2009. And stock markets were poised to close the year well above where they started in 2021. For 2021, the STOXX Europe 600 Index rose 22.3%; the United Kingdom’s FTSE advanced 14.3%; Japan’s Nikkei 225 Index climbed 4.9%; and China’s Shanghai Composite Index gained 4.8%.
• Consumer confidence: The Conference Board Consumer Confidence Index® increased in December. The index stands at 115.8, up from 111.9 in November (revised). The Present Situation Index, based on consumers’ assessment of current business and labor market conditions, was relatively flat at 144.1 in December, down from 144.4 the previous month. The Expectations Index — based on consumers’ short-term outlook for income, business, and labor market conditions — increased to 96.9 in December, up from November’s reading of 90.2.

Eye on the Year Ahead

The year 2022 should bring continued economic recovery. As the United States and the world inch slowly toward normalcy following the battle against the COVID-19 pandemic, stock markets, employment, and production should also advance. Inflationary pressures are likely to continue, which will most certainly prompt adjustments to the target range for the federal funds rate. Will President Joe Biden and lawmakers be able to reach an accord on a spending bill? Will the coronavirus continue to mutate and spread? The year 2022 is likely to provide another roller-coaster ride.

The Markets (as of market close December 31, 2021)

The last week of 2021 saw stocks close generally higher, with only the Nasdaq slipping lower. The Dow ended the week up 1.1%, followed by the S&P 500, the Global Dow, and the Russell 2000. The week between Christmas and New Year’s Day is generally marked by thin trading, and last week was no exception. Most of the market sectors closed the week in the black, led by real estate, utilities, materials, and consumer staples. Ten-year Treasury yields inched higher, crude oil prices rose $1.66 per barrel, while the dollar dipped lower.

Wall Street closed higher for a fourth day last Monday as investors weighed the prospects of a year-end rally against rising COVID cases. The S&P 500 gained 1.4% to mark its 69th record close of 2021. The Nasdaq also rose 1.4% as tech stocks continued to advance higher. The Dow rose 1.0%, the Russell 2000 climbed 0.9%, and the Global Dow added 0.6%. Ten-year Treasury yields slid, while crude oil prices and the dollar advanced. All of the market sectors moved higher, led by energy, real estate, and information technology.

Stocks ended last Tuesday mixed, with only the Global Dow and the Dow gaining 0.3% by the close of trading. The Russell 2000 fell 0.7%, the Nasdaq dropped 0.6%, and the S&P 500 slipped 0.1%. Crude oil prices and the dollar advanced marginally, while 10-year Treasury yields were unchanged at 1.48%. Utilities and consumer staples led the market sectors, while information technology and communication services declined.

The Dow and the S&P 500 each climbed to record highs last Wednesday, while tech shares dragged the Nasdaq marginally lower. Wednesday’s record close for the S&P 500 was the 70th of the year for that index. In what was a day of low trading volume, the Russell 2000 and the Global Dow also posted minimal gains. Bond prices dipped, sending yields higher, with 10-year Treasuries jumping 4.2%. Crude oil prices rose to $76.50 per barrel, while the U.S. Dollar Index slipped to 95.91.

Wall Street’s winning streak ended last Thursday, as each of the benchmark indexes closed in the red. The S&P 500 and the Dow lost 0.3%. The Nasdaq and the Global Dow fell 0.2%, while the Russell 2000 was unchanged. Crude oil prices and 10-year Treasuries slipped, while the dollar inched higher. Among the market sectors, only utilities, real estate, health care, and communication services closed higher. Energy and information technology fell 0.7%. Stocks closed the week and the year with mixed returns. The Dow, the S&P 500, and the Nasdaq, fell last Friday, while the Russell 2000 and the Global Dow inched higher. The market sectors were also mixed last Friday, with consumer staples, energy, industrials, materials, real estate, and utilities posting gains, while the remaining sectors slid. Ten-year Treasury yields, crude oil prices, and the dollar dipped lower.

Stock Market Indexes

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic News

• The international trade in goods deficit expanded by $14.6 billion, or 17.5%, in November. Exports of goods for November were $154.7 billion, $3.3 billion less than October exports. Imports of goods for November were $252.4 billion, $11.3 billion more than October imports.
• The national average retail price for regular gasoline was $3.275 per gallon on December 27, $0.020 per gallon less than the prior week’s price but $1.032 higher than a year ago. Gasoline production increased during the week ended December 24, averaging 10.1 million barrels per day. U.S. crude oil refinery inputs averaged 15.7 million barrels per day during the week ended December 24 — 124,000 barrels per day less than the previous week’s average. Refineries operated at 89.7% of their operable capacity, 0.1 percentage point below the prior week’s rate of capacity.
• For the week ended December 25, there were 198,000 new claims for unemployment insurance, a decrease of 8,000 from the previous week’s level, which was revised up by 1,000. According to the Department of Labor, the advance rate for insured unemployment claims for the week ended December 18 was 1.3%, a decrease of 0.1 percentage point from the previous week’s rate. The advance number of those receiving unemployment insurance benefits during the week ended December 18 was 1,716,000, a decrease of 140,000 from the prior week’s level, which was revised down by 3,000. This is the lowest level for insured unemployment since March 7, 2020, when it was 1,715,000. During the last week of February 2020 (pre-pandemic), there were 219,000 initial claims for unemployment insurance, and the number of those receiving unemployment insurance benefits was 1,724,000. States and territories with the highest insured unemployment rates for the week ended December 11 were Alaska (3.1%), California (2.7%), Puerto Rico (2.7%), the Virgin Islands (2.5%), New Jersey (2.4%), Illinois (2.3%), Minnesota (2.3%), Hawaii (2.0%), Massachusetts (1.8%), and Nevada (1.8%). The largest increases in initial claims for the week ended December 18 were in Oklahoma (+947), Michigan (+841), Washington (+803), Alabama (+732), and Arkansas (+731), while the largest decreases were in Missouri (-5,549), Pennsylvania (-4,520), Kentucky (-1,915), Georgia (-1,699), and Illinois (-1,321).

Eye on the Week Ahead

There is plenty of important economic data available this week, beginning with the purchasing managers’ manufacturing survey. The manufacturing sector gained traction for much of 2021, only to be sidetracked somewhat by labor shortages and supply chain constrictions. The week ends with the December jobs report. Employment rose by 210,000 in November, well below the monthly average of 550,000.

The Markets (as of market close December 23, 2021)

Wall Street closed the holiday-shortened week at record levels as investors seemed to speculate that the economic recovery could weather the growing number of coronavirus cases. The S&P 500 closed the week at a record high. The Nasdaq and the Russell 2000 ended up over 3.0%. Ten-year Treasury yields, gold, and crude oil prices climbed higher, while the dollar dipped lower. The market sectors were mixed, with consumer discretionary, communication services, and information technology leading the gainers.

Stocks slid last Monday. Fears that the Omicron variant could undercut the economic rebound, coupled with a setback to President Joe Biden’s social-spending bill, was enough to send stocks reeling. Each of the benchmark indexes listed here fell by at least 1.0%, with the small caps of the Russell 2000 dipping 1.6% to lead the declines. Ten-year Treasury yields inched higher, while the dollar and crude oil prices fell. Materials, consumer discretionary, financials, and industrials led the declines among the market sectors.

Equities jumped higher last Tuesday, reversing course from what had been the biggest three-day drop since September. While the Omicron variant continued to rage around the world, the White House indicated that widespread lockdowns were not anticipated and suggested that any negative impact of the latest virus strain on economic activity would be relatively short and shallow. The Russell 2000 and the Nasdaq each gained more than 2.0%, while the remaining benchmark indexes listed here advanced by at least 1.6%. Bond prices fell, sending yields higher. Crude oil prices, which had dipped below $69.00 per barrel, climbed to $71.46 per barrel. The dollar was relatively unchanged. Energy, consumer discretionary, information technology, and financials led the market sectors.

Wall Street ended last Wednesday in the black with several benchmark indexes closing near session highs. Information technology and consumer discretionary led the way on a day when no market sector lost value. The Nasdaq finished up 1.2%, followed by the S&P 500 (1.0%), the Russell 2000 and the Global Dow (0.9%), and the Dow (0.8%). Ten-year Treasury yields and the dollar dipped, while crude oil prices pushed higher, closing at $72.95 per barrel.

Thursday was the last trading day of the week, as the markets closed Friday in observance of the Christmas holiday. Despite low trading volume, each of the benchmark indexes listed here posted solid gains, with the Global Dow, the Nasdaq, and the Russell 2000 gaining 0.9%. The Dow and the S&P 500 advanced 0.6%. Treasury yields and crude oil prices climbed higher, while the dollar was unchanged. Consumer discretionary, materials and industrials led the market sectors.

The national average retail price for regular gasoline was $3.295 per gallon on December 20, $0.020 per gallon less than the prior week’s price but $1.071 higher than a year ago. Gasoline production decreased during the week ended December 17, averaging 9.9 million barrels per day. U.S. crude oil refinery inputs averaged 15.8 million barrels per day during the week ended December 17 — 148,000 barrels per day more than the previous week’s average. Refineries operated at 89.6% of their operable capacity, the same level as the prior week.

Stock Market Indexes

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic News

• The economy accelerated at an annualized rate of 2.3%, according to the third and final estimate of the third-quarter gross domestic product. In the second quarter, the GDP increased 6.7%. The third-quarter advance reflected increases in private inventory investment, personal consumption expenditures, state and local government spending, and nonresidential fixed investment that were partly offset by decreases in exports, residential fixed investment, and federal government spending. Imports, which are a negative in the calculation of GDP, increased. The deceleration in third-quarter GDP compared to the second quarter was more than accounted for by a slowdown in personal consumption expenditures, as spending for goods declined (led by a decrease in motor vehicles and parts), while spending on services also fell (led by a decrease in food services and accommodations). The personal consumption expenditures price index increased 5.3% in the third quarter, compared with an increase of 6.5% in the second quarter. Excluding food and energy prices, the PCE price index increased 4.6% in the third quarter, compared with an increase of 6.1% in the previous quarter.
• Inflationary pressures continued to be felt in November. According to the latest data from the Bureau of Economic Analysis, prices for consumer goods and services rose 0.6% in November and are up 5.7% over the past 12 months. Excluding food and energy, prices were up 0.5% for November and 4.7% year over year. Personal income increased 0.4% in November as wages and salaries rose 0.5%. Consumer spending also advanced in November, climbing 0.6% following a 1.4% jump in October.
• Existing home sales rose for the third consecutive month in November. According to the latest data from the National Association of Realtors®, existing home sales accelerated at a rate of 1.9% from October. Sales are still 2.0% below their pace from a year ago. According to the report, the rise in sales may be attributable to buyers trying to make home purchases before mortgage rates rise further in the coming months. The median existing home price for all housing types in November was $353,900, the same price as in October, but 13.9% above the November 2020 price. Total housing inventory at the end of November sat at a 2.1-month supply, down from 2.4 months in October. Single-family home sales rose 1.6% in November. The median existing single-family home price was $362,600 in November, up from October’s price of $360,800.
• Sales of new single-family homes rose by 12.4% in November compared to the previous month. Nevertheless, sales of new single-family homes were 14.0% below the November 2020 estimate. The median sales price of new houses sold in November was $416,900 ($408,700 in October). The average sales price was $481,700 ($478,200 in October). Available inventory of new single-family homes for sale in November was 402,000, which represents a supply of 6.5 months at the current sales pace.
• New orders for manufactured durable goods in November increased $6.5 billion, or 2.5%, to $268.3 billion, according to the U.S. Census Bureau. This increase, up six of the last seven months, followed a 0.1% October increase. Excluding transportation, new orders increased 0.8%. Excluding defense, new orders increased 2.0%. Transportation equipment, up following two consecutive monthly decreases, led the increase, climbing $5.0 billion, or 6.5%, to $82.1 billion. Items of particular note include new orders for computers and electronic products, which rose 4.0%; communications equipment advanced 11.1%; and nondefense aircraft and parts jumped 34.1%. New orders for capital goods increased 5.5%, with defense capital goods advancing 16.0%. In November, shipments and unfilled orders rose 0.7%, while inventories advanced 0.6%.
• For the week ended December 18, there were 205,000 new claims for unemployment insurance, unchanged from the previous week’s level, which was revised down by 1,000. According to the Department of Labor, the advance rate for insured unemployment claims for the week ended December 11 was 1.4%, unchanged from the previous week’s rate. The advance number of those receiving unemployment insurance benefits during the week ended December 11 was 1,859,000, a decrease of 8,000 from the prior week’s level, which was revised up by 22,000. This is the lowest level for insured unemployment since March 14, 2020, when it was 1,770,000. For comparison, last year at this time there were 803,000 initial claims for unemployment insurance, and the rate for unemployment claims was 3.7%. During the last week of February 2020 (pre-pandemic), there were 219,000 initial claims for unemployment insurance, and the number of those receiving unemployment insurance benefits was 1,724,000. States and territories with the highest insured unemployment rates for the week ended December 4 were Alaska (3.1%), the Virgin Islands (2.9%), Puerto Rico (2.5%), California (2.4%), New Jersey (2.4%), the District of Columbia (2.2%), Minnesota (2.2%), Hawaii (1.9%), Illinois (1.8%), and Massachusetts (1.8%). The largest increases in initial claims for the week ended December 11 were in Missouri (+7,344), Kentucky (+3,600), Illinois (+1,171), Nebraska (+1,032), and Tennessee (+705), while the largest decreases were in New York (-8,157), North Carolina (-4,320), Texas (-4,086), Wisconsin (-3,214), and Oregon (-1,982).

Eye on the Week Ahead

There isn’t much economic data available this week, other than the advance report in the international trade in goods for November. The week between Christmas and New Year’s Day is typically a slow week for trading.