The year ended on a high note for the Dow and S&P 500 despite economic challenges posed by the coronavirus and extreme weather events.
As expected, the Federal Open Market Committee accelerated the reduction (“tapering”) of its monthly asset purchases (now expected to end in March rather than June). The policy statement indicated that “job gains have been solid in recent months and the unemployment rate has declined substantially.”
As the end of 2021 draws near, investors are pleased with the impressive performance posted by most asset classes, but we are still awaiting the transition to the endemic state of the virus.
In his congressional testimony of November 30, Fed Chair Powell seemed to shift from cautious to hawkish. However, the evolution of the inflationary outlook had been underway for a while. The spike in inflation in the spring was narrow, the gain concentrated in a few categories.
Have the tables turned? The S&P 500 is just shy of its level prior to the World Health Organization declaring Omicron a “variant of concern.
What’s on the market’s wish list for 2022? Raymond James CIO Larry Adam provides a festive perspective.
The November Employment Report was a mixed bag. Nonfarm payrolls rose less than anticipated, but the unemployment rate fell sharply. The shortfall in payrolls (relative to expectations) likely reflects the usual noise in the monthly data, it might reflect difficulties in hiring, but it certainly doesn’t reflect weak labor demand.
Though the equity markets likely will experience some volatility, the outlook for economic growth remains positive: above-average growth should lead to above-average earnings growth for companies in 2022.
You can learn a lot by talking to people. The economy is “strong,” but also “terrible.” Higher inflation is “transitory,” but also “likely to persist.” Fed policy is “behind the curve,” but also “appropriately positioned.” In truth, the outlook for growth, inflation, and monetary policy is evolving.
Thanksgiving is the time to reflect on all we are grateful for, and given the strides the economy and markets have made over the last year, we have a cornucopia of blessings to count! Between the economic expansion and the S&P 500 up 27% year-to-date, there is quite a long list.
October inflation figures were higher than expected. More troublesome, the range of items with higher inflation, relatively narrow in the spring, appears to be widening. Inflation expectations for the next five years have risen. Higher inflation is dampening consumer sentiment.
Inflation figures surprised to the upside. The Consumer Price Index rose 0.9% in October (+6.2% year over year), up 0.6% (+4.6% year over year) excluding food and energy. Gasoline rose 6.1% (+49.6% year over year). Used vehicle prices rose 2.5% (+26.4% year over year).
Its National Young Readers Week! Whether your favorite childhood author was C.S. Lewis or Judy Blume, you likely remember the joy of reading your favorite book and turning through the pages of witty rhymes and colorful illustrations. I know for me, the times spent reading with my three daughters will always be some of my fondest memories.
As expected, the Federal Open Market Committee (FOMC) announced it would begin reducing (“tapering”) the monthly pace of asset purchases – currently $120 billion – by $15 billion per month but could go faster or slower depending on economic conditions.
As was widely expected, the Federal Open Market Committee announced the tapering of its monthly pace of asset purchases. The criteria for the lift-off in short-term interest rates is more stringent, but as Chair Powell admitted in his press conference, reaching full employment by the second half of next year is “certainly within the realm of possibility.”
This month marks 30 years since the release of the Disney Classic, Beauty and the Beast! Those fondly recalling the film probably remember the iconic songs and cast of household objects that came to life; but the moral of the story is to not be deceived by appearances. Ironically, this same message is quite applicable for investors.
As expected, the advance estimate of 3Q21 Gross Domestic Product showed a sharp slowing in growth. More timely data suggest that the economy regained some momentum into early 4Q21. Still, there are important questions regarding the labor market, inflation pressures, and Federal Reserve policy over the near term.
Earnings reports were mixed. Bond yields declined, as market participants generally expect the Fed to raise short-term interest rates earlier to get inflation under control.
Jeepers Creepers! It’s hard to believe that Halloween is just days away, and as the month of October comes to a close investors will be anxiously awaiting the release of the jobs report next Friday. There has been some ‘toil and trouble’ in the labor market due to the vast number of jobs available yet an inability to fill the openings.
Treasury reported a federal budget deficit of about $2.8 trillion (about 12% of GDP) for FY21. Barring a major unforeseen event, the deficit will fall considerably next year. By itself, that will be a negative for GDP growth, but a further strengthening in private-sector demand should more than offset that.
Expectations of the Fed’s liftoff in short-term interest rates have continued to inch forward and bond yields have moved moderately higher. However, investors remain optimistic, looking beyond recent concerns (the delta variant and supply chain and labor issues).
Tomorrow is National Dictionary Day! Whether spoken or written, the power of words is undeniable. And as your Investment Strategy Team, we choose ours wisely, as to not create confusion when communicating our views.
There was another “disappointing” gain in nonfarm payrolls in September (up 194,000, vs. a median forecast of +500,000), but it’s not as bad as it looks. Less hiring at the start of the school year resulted in a decline in (adjusted) education jobs.
While unlikely to occur, a default on U.S. debt would have serious impacts for global financial markets. Learn more.
As we sit atop our prosperous peak, admiring the views of the fastest economic growth since 1984, the best start to a bull market and the record-breaking quarter of earnings growth, it’s wise to remember that not too long ago we began our uphill journey from the depths of the COVID-19 ravine. Often, the best views come after the hardest climbs.
Chief Economist Scott Brown discusses the latest market data.
Following the strong performance in the first half of the year, economic growth was bound to moderate in the second half. Growth is still expected to be strong by historical standards. Yet, it may be disappointing for some investors.
Review the latest Weekly Headings by CIO Larry Adam.
In a win (but not a complete victory) for “team transitory,” the Consumer Price Index rose less than expected in August (+0.3%, up just 0.1% excluding food and energy). Areas that were running hot a few months ago (used cars, vehicle rentals, car insurance, airfares) retreated.
In addition to football, this fall will be eventful for our team of monetary policymakers at the Federal Reserve. Quarterbacked by Chairman Powell, the Fed will draft its route to easing its accommodative stance now that the economic recovery has put some points on the scoreboard.
As of the end of August, the index's year-to-date gains exceed 20%.
“We have production bottlenecks and supply shortages in every economic recovery,” says Raymond James Chief Economist Scott Brown, but those issues – and inflation – are expected to ease with time.
From school bells to the bells of New York Stock Exchange—the ringing of bells often signifies the beginning and/or conclusion of an event.
Optimism around GDP growth, employment and earnings has, for now, outweighed worries related to COVID-19 variants.
Chief Economist Scott Brown discusses current economic conditions.
Raymond James Chief Investment Officer Larry Adam examines the current investing environment through the lens of classic games.
