Friday, December 3, 2021
U.S. and International Equities
Major Markets Lower
The major equity markets finished the week lower. The markets continued to pull back following last Friday’s announcement concerning the new Omicron COVID-19 variant that has now spread globally. The S&P 500 Index suffered its worst two-day performance in over a year this week. Only the utilities sector finished higher as all sector finished the week lower.
Developed international equities, as represented by the MSCI EAFE Index, followed U.S. markets lower. The one bright spot this week was emerging markets, as represented by the MSCI EM Index. Amid concerns over China’s continued regulatory crackdown and its economic trajectory, bargain hunters added risk to this area.
Bonds Rally In Light of Variant and Inflation Concerns
The Bloomberg Aggregate Bond Index finished higher this week as high-quality bonds saw strong demand from the flight-to-safety trade. High-yield corporate bonds, as tracked by the Bloomberg Barclays High Yield index, rebounded after a three week sell-off on inflation concerns.
Commodities Pull Back for a Second Straight Week
Commodities had their second straight down week on the back of concerns surrounding the effects of the Omicron variant on the global economy and travel. Natural gas was the notable decliner, pulling back almost 25% for the week.
Economic Weekly Roundup
Federal Reserve (Fed) Chairman Jerome Powell testified before Congress this week. Powell acknowledged the risks related to Omicron, but given the genesis of the virus, he was unable to comment further. He acknowledged that the effects of the Omicron variant will be analyzed by the Fed once more data is available.
With regard to inflation, Powell retired the word “transitory” while reiterating that elevated inflation is fundamentally due to supply and demand imbalances. Powell also indicated that tapering might be accelerated by a few months, which led market participants to interpret the Fed’s updated commentary as a hawkish shift.
Global Supply Chain Pressures Moderate
The November global manufacturing Purchasing Managers’ Index came in broadly unchanged. Strength in new global orders continued to outpace output, which is a positive signal for future growth. Moreover, what is most encouraging was that fewer firms reported higher order backlogs along with longer suppliers’ delivery times. This indicates some relief on global supply chain strains.
Continuing Claims Decline below 2 million; November Jobs Weak
The employment landscape continues to improve as continuing claims for unemployment insurance fell below the 2 million milestone and a new pandemic low. Initial claims increased from the revised prior reading, however they beat economist expectations.
The news from the monthly employment report was not as good. The U.S. economy added 210,000 jobs in November, well below the consensus expectation of over 500,000. However, the unemployment rate fell sharply to 4.2% from 4.6% last month as new workers entered the job market, pushing the labor participation rate up slightly to 61.8%, a post-recession high but still well off pre-pandemic levels.
The following economic data is slated to be released during the week ahead:
- Tuesday: Q3 unit labor costs and productivity, October trade balance and consumer credits
- Wednesday: October U.S. Bureau of Labor Statistics Job Openings and Labor Turnover Survey (JOLTS)
- Thursday: Weekly initial and continuing unemployment claims, October wholesale inventories
- Friday: November Consumer Price Index, workweek statistics, Treasury budget, December University of Michigan index
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