U.S. and International Equities
Major Markets in the Green
The major equity markets finished the week higher, as the Santa Claus rally continued to take hold even amid concerns about the Omicron variant’s effects on the economy. Nevertheless, the Federal Reserve’s (Fed) hawkish stance on inflation continues to weigh on investor’s minds. Real estate enjoyed a strong week as well as an excellent 2021, as investors saw opportunity in the sector given its income producing properties and potential to act as an inflation hedge.
International markets also caught a bid for the second straight week despite continuing to battle an increase in COVID-19 cases. Gains in emerging markets for the week topped those in developed markets, as markets seemed to look past the Chinese real estate giant Evergrande’s second debt default.
Fixed Income Higher
The Bloomberg Aggregate Bond Index finished marginally higher this week. High-quality bonds had a tough December as traders sold off longer-term government bonds on inflation concerns. This sentiment did not carry over to high-yield corporate bonds, as tracked by the Bloomberg High Yield index, as these bonds continued their run ending 2021 on solid footing.
Commodities Mostly Higher
Natural gas finished lower this week and is down over 15% for the month while oil finished the week higher. The major metals were relatively unchanged this week with both gold and silver ending lower in 2021 despite inflation concerns.
Economic Weekly Roundup
Pending Home Sales Decline
November pending U.S. home sales dropped by over 2%. Economists had estimated that pending home sales would increase month-over-month by 0.5%. Reasons for this decline include relatively high home prices across the country.
Housing demand increased early in the onset of COVID-19 given increased demand for living in less densely populated area that accommodated working from home. Moreover, the housing market simmered during the first half of 2021 as low inventory increased prices beyond the reach of many potential home buyers. It appears these conditions may affect housing demand going into 2022.
Employment Claims Below 200k
Initial claims for unemployment insurance continue to come in near multi-decade lows and were reported at just under 200,000 for the week ending December 24, while continuing claims declined to near 1.7 million. This is the third reading below 200,000 in the past six weeks, and it sends the less-volatile four week moving average of claims below 200,000 for the first time since 1969.
Although labor statistics such as the labor force participation rate remain far from ideal, the labor market landscape remains tight. We continue to believe the current standing of the labor market will do little to prevent the Fed from increasing rates presuming inflation continues to rise into 2022.
The following economic data is slated to be released during the week ahead:
- Monday: Markit December Purchasing Managers’ Index, November construction spending
- Tuesday: December Institute for Supply Management Manufacturing Report, November JOLTS Job Openings
- Wednesday: December ADP Employment Survey, Purchasing Managers’ Index composite, Markit Purchasing Managers Index Services Report
- Thursday: Weekly initial and continuing unemployment claims, November trade balance, durable goods and factory orders, December Institute for Supply Management Non-Manufacturing Report
- Friday: December employment report, including hourly earnings, average workweek, manufacturing and nonfarm payrolls.
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